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Connect Purchase Connect Chegg Study Guided Sc × | https://newconnect.mheducation.com/flow/connect.html Exercise 11-16A Variable costing versus absorption costing LO 11-4 Benson Company incurred manufacturing overhead cost for the year as follows: Manufacturing overhead % 11.90/unit Fixed (18.6/unit for 1,see units) 180 bonus based on the company's net income costing a. Prepare an income statement using ab b. Prepare an income statement using variable costing e. Determine the managers bonus using each approach. Which approach would you recommend for internal reporting? 9:41 PM

Explanation / Answer

a) INCOME STATEMENT ABSORPTION COSTING Sales =800*181.10= 144880 Cost of goods sold: Direct materials =800*18.60= 14880 Direct labor =800*26.80= 21440 Variable mfg overhead =800*11.90= 9520 Fixed mfg overhead=800*18.6= 14880 60720 Gross profit 84160 Operating expenses: Variable selling and administrative expenses 6160 Fixed selling and administrative expenses 15100 Total operating expenses 21260 Net operating income 62900 b) INCOME STATEMENT VARIABLE COSTING Sales =800*181.10= 144880 Variable expenses: Direct materials =800*18.60= 14880 Direct labor =800*26.80= 21440 Variable mfg overhead =800*11.90= 9520 Variable selling and administrative expenses 6160 Total variable expenses 52000 Contribution margin 92880 Fixed expenses: Fixed manufacturing overhead 24180 Fixed selling and administrative expenses 15100 Total fixed expenses 39280 Net operating income 53600 c) MANAGER'S BONUS: Absorption costing (62900*1%) 629 Variable costing (53600*1%) 536 Which approach is recommended Variable costing Reason: The method treats fixed expenses rightly as period costs, because of which inventory value does not include fixed costs.

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