The PTI Company sells its product at $3 00 per unit PTI uses a FIFO costing system, and a new burden rate for allocating overhead is determined each year by dividing the overhead by units produced The following information pertains to the first two years of operations Year 1 Year 2 Sales 1,000 units 1,200 units Production 1,400 units 1,000 units Costs Direct manufacturing costs $700 $500 Overhead (all fixed) $700 $700 Variable SG A $1,000 $1,200 Fixed SG A $400 $400 For each year, calculate income using absorption costing Some firms use variable costing instead of absorption costing Under variable costing, all fixed costs both manufacturing and SG A are reported as expenses in the period in which they occur For each year, calculate income using variable costing Compare your income calculations across the two costing approaches Are they different If so, why In class, we discussed why evaluating firm managers using absorption costing may encourage them to engage in dysfunctional behaviors That said, are there circumstances in which you would recommend evaluating managers using absorption costing information List and describe at least 2 such circumstances

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The PTI Company sells its product at $3.00 per unit. PTI uses a FIFO costing system, and a new burden rate for allocating overhead is

The PTI Company sells its product at $3.00 per unit. PTI uses a FIFO costing system, and a new burden rate for allocating overhead is determined each year by dividing the overhead by units produced. The following information pertains to the first two years of operations:

	Year 1	Year 2
Sales	1,000 units	1,200 units
Production	1,400 units	1,000 units
Costs
Direct manufacturing costs	$700	$500
Overhead (all fixed)	$700	$700
Variable SG&A	$1,000	$1,200
Fixed SG&A	$400	$400

For each year, calculate income using absorption costing.

Some firms use variable costing instead of absorption costing. Under variable costing, all fixed costs both manufacturing and SG&A are reported as expenses in the period in which they occur. For each year, calculate income using variable costing.

Compare your income calculations across the two costing approaches. Are they different? If so, why?

In class, we discussed why evaluating firm managers using absorption costing may encourage them to engage in dysfunctional behaviors. That said, are there circumstances in which you would recommend evaluating managers using absorption costing information? List and describe at least 2 such circumstances.