Variable Costing Can Still Create Incentives to Over Produce Cope Products uses a flexible budget to set the overhead rate at the beginning of the year based on units produced in year 1 budgeted foxed overhead is $1 milion and budgeted variable overhead is $2 per unit Direct material and direct labor together are $5 per unit Cope sells the completed product for $30. There is no beginning inventory Budgeted volume is 80.000 unes. Production and sales are 00,000 units. Actual overhead incurred in year 1 is $1560,000 Any under- or over-absorbed overhead is writters off to cost of goods sold In year 2. budgeted volume and production are again both 80.000 units. However, only 60,000 units are sold Budgeted fixed overhead is $1 million and budgeted variable overhead is $2 per unit. Dect mater and direct labor are $5 per unit. Final selling price remains at $30 per unit. Actual overhead incurted in year 2 is $1.35 million Required: a Calculate net income in year 1 first using absorption costing and then using variable costing plan any ofference between the two net income numbers b. Calculate net income in year 2 using absorption costing, where the overhead tate used to assign overhead to products is based on actual overhead incurred c. Calculate net income i year 2 using variable costing, where any difference between budgeted overhead and actual overhead is treated as a fixed cost d. Calculate net income in year 2 using variable costing where any difference between budgeted overhead and actual overhead is treated as a variable cost e Explain why your answers in parts (b), c) and (di ofer Variable Costing and Over/Under Producing Cathy's Mats produces and sells artistic placemats for dining room tables. These placemats are manufactured out of recycled plastics. For last year and this year tech mat has a variable manufacturing cost of $3 and foxed manufacturing overhead is $150,000 per year (both Last Year and The Year) Cathy's Mats incurs no other costs. The folowing table summarizes the selling price and the number of its producent and sold Lan Year and This Year Selling price Variable manufacturing cost Fixed manufacturing cost Units produced Units sold Last Year This Year $ $5.00 5 5,00 3,00 $150,000 $150,000 150,000 50,000 100,000 100,000 Cathy's Mats uses FIFO Festin Fest Out to value its ending inventory Last Year Cathy's Mats had no beginning eventory Required: a. Prepare income statements for Last Year and This Year using absorption costing b. Prepare income statements for Last Year and This Year using variable costing c Wree a short memo explaining why the net income amounts for Last Year and This Year are the same or different in parts (a) and (b d. Assume all the same facts (and data) as given in the problem, EXCEPT that This Near Cathy's Mats produced 60,000 mats rather than 50,000 mats Compute net income for Last Year and This Year using absorption costing and 0 variable costing e Write a short memo explaining why the net income amounts for Last Year and This Year are the same or different in 5 and 6) of part (d)