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

Direct materials	$	38.80	/unit
Direct labor	$	28.00	/unit
Manufacturing overhead
Variable	$	11.10	/unit
Fixed ($19.50/unit for 1,800 units)	$	35,100
Variable selling and administrative expenses	$	8,060
Fixed selling and administrative expenses	$	15,900

The company produced 1,800 units and sold 1,300 of them at $181.20 per unit. Assume that the production manager is paid a 3 percent bonus based on the company’s net income.

Required

1. Prepare an income statement using absorption costing.

2. Prepare an income statement using variable costing.

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