roject Question 1 of 1 Brian, one of the two production managers at Just Face It, was happy that he got his bonus this year but still upset that he didn't get his bonus last year. The company makes 24K gold peel-off face masks, which are holding their own in the market. He was not holding his emotions so well, however, in his conversation with Sharon, the accounting supervisor. Brian: Sharon: -/10 : Brian: Sharon: I worked my team so hard, both years. This year, we increased our yield in order to beat the production quota, while last year we worked hard to follow a lean approach to inventory. It required a lot of extra time scheduling, and still sales were exactly the same in both years. I don't understand. How can we sell the same volume of units for two straight years, incur the same costs, and one year we get a bonus and one year we don't? Please tell me what's going on. Calm down, Brian. Let me try to break this down for you. Do you remember our third quarter meeting, when I spoke up about inventory, wondering where we stood and where it looked like we might land in terms of ending inventory? Yes, vaguely. Why? What does that have to do with anything? It has everything to do with the situation we are in. If you recall, we have always used an accounting method called absorption costing. I've been trying to get our executives to agree to use a different system for bonus calculations, but so far they aren't buying it. Here, let me show you something. Sharon used the following information to help her address Brian's concerns. She also noted there were no price or efficiency variances in either year. Any fixed-MOH volume variance is written off directly to COGS. Beginning FG Inventory Budgeted production Actual production Actual sales volume Selling price Budgeted variable manufacturing costs Budgeted variable operating costs Budgeted fixed manufacturing costs Budgeted fixed operating costs Year 1 4,600 units 302.000 units 302,000 units 306,600 units $5.00 per unit $1.80 per unit $0.60 per unit $99,660 $200,000 Year 2 302,000 units 307.200 units 306,600 units $5.00 per unit $1.80 per unit $0.60 per unit $99,660 $200,000 Prepare the absorption costing income statements that Sharon would have shown Brian for both years (assume beginning F Inventory cost per unit in Year 1 is the same as the current period's inventory cost per unit under absorption costing). Year 1 Year 2 V > Adjusted COGS COGS Fixed Expenses Fixed-MOH Volume Variance Gross Margin Operating Income Sales SG&A Expenses Unadjusted COGS Variable Expenses LA $ SA SA