Sparkle Inc. is a semiconductor company based in Winnipeg. In $2013,$ it produced a new router system for its corporate clients. The average wholesale selling price of the system is $$1,150$ each. For $2013,$ Sparkle estimates that it will sell $10,000$ router systems and so produces $10,000$ units. Actual $2013$ sales are $8,960$ units. Sparkle's actual $2013$ costs are:

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Requirements

Definition

Data table

Requirements

Calculate the operating income under variable costing.

Each router unit produced is allocated $$153$ in fixed manufacturing costs. If the production$-$volume variance is written off to cost of goods sold, and there are no price, rate, or efficiency variances, calculate the operating income under absorption costing.

Explain the differences in operating incomes obtained in requirement $1$ and requirement $2.$

Sparkle's management is considering implementing a bonus for the supervisors based on gross margin under absorption costing. What incentives will this create for the supervisors? Do you think this new bonus plan is a good idea? Explain briefly.

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