Grunewald Company manufactures a professional grade vacuum cleaner. It began
operations in 2020. For 2020, Grunewald budgeted to produce and sell 20,000 units.
Actual data of 2020 are given as follows:
Units produced 18,000
Units sold 17,500
Selling price $425
Variable costs:
Manufacturing cost per unit produced
Direct materials $30
Direct manufacturing labor 25
Manufacturing overhead 60
Marketing cost per unit sold 45
Fixed costs:
Manufacturing costs $1,100,000
Administrative costs 965,450
Marketing 1,366,400
a) Prepare a 2020 income statement for Grunewald Company using
variable costing.
b) Prepare a 2020 income statement for Grunewald Company using
absorption costing.
c) Explain the differences in operating incomes obtained in
requirement a and requirement b.
d) Grunewald’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? What
modifications could Grunewald management make to improve
such a plan? Explain briefly