Perez Company incurred manufacturing overhead cost for the year as follows.

Direct materials	$	38.80	/unit
Direct labor	$	27.90	/unit
Manufacturing overhead
Variable	$	10.80	/unit
Fixed ($18.30/unit for 1,400 units)	$	25,620
Variable selling and administrative expenses	$	6,480
Fixed selling and administrative expenses	$	14,500

The company produced 1,400 units and sold 900 of them at $181.30 per unit. Assume that the production manager is paid a 1 percent bonus based on the companys net income.

Required

1. Prepare an income statement using absorption costing.

2. Prepare an income statement using variable costing.

3. Determine the managers bonus using each approach. Which approach would you recommend for internal reporting?