Tribeck Company is a family-owned business in which you own 20% of the common stock and your brothers and sisters own the remaining shares. The employment contract of Tribeck's new president, Jake Goll, stipulates a base salary of $160,000 per year plus 10% of income from operations in excess of $800,000. Goll uses the absorption costing method of reporting income from operations, which has averaged approximately $1,100,000 for the past several years. Sales for 2010, Goll's first year as president of Tribeck Company, are estimated at 500,000 units at a selling price of $120 per unit. To maximize the use of Tribeck's productive capacity, Goll has decided to manufacture 60,000 units, rather than the 50,000 units of estimated sales. The beginning inventory at January 1, 2010, is insignificant in amount, and the manufacturing costs and selling and administrative expenses for the production of 50,000 and 60,000 units are as follows:

1. In one group, prepare an absorption costing income statement for the year ending December 31, 2010, based on sales of 50,000 units and the manufacture of 50,000 units. In the other group, conduct the same analysis, assuming production of 60,000 units.
2. Explain the difference in the income from operations reported in (1).
3. Compute Goll's total salary for the year 2010, based on sales of 50,000 units and the manufacture of 50,000 units (Group 1) and 60,000 units (Group 2). Compare your answers.
4. In addition to maximizing the use of Tribeck Company's productive capacity, why might Goll wish to manufacture 60,000 units rather than 50,000 units?
5. Can you suggest an alternative way in which Goll's salary could be determined, using a base salary of $160,000 and 10% of income from operations in excess of $800,000, so that the salary could not be increased by simply manufacturing moreunits?

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50,000 Units to Be Manufactured Number Unit of Units Cost Total Cost Manufacturing costs: Variable Fixed 50,000 $56 $2,800,000 600,000 $68 $3,400,000 50,000 12 Total Selling and administrative expenses: Variable Fixed .. . .- $1,200,000 400,000 $1,600,000 Total 60,000 Units to Be Manufactured Number Unit of Units Cost Total Cost Manufacturing costs: Variable . - Fixed 60,000 $56 3,360,000 600,000 $66 $3,960,000 60,000 10 Total Selling and administrative expenses: Variable Fixed ..$1,200,000 400,000