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In: Accounting

Franklin Company incurred manufacturing overhead cost for the year as follows: Direct materials $ 38.20 /unit...

Franklin Company incurred manufacturing overhead cost for the year as follows:

Direct materials $ 38.20 /unit
Direct labor $ 27.10 /unit
Manufacturing overhead
Variable $ 10.50 /unit
Fixed ($19.20/unit for 1,300 units) $ 24,960
Variable selling and administrative expenses $ 6,160
Fixed selling and administrative expenses $ 14,300

The company produced 1,300 units and sold 800 of them at $180.30 per unit. Assume that the production manager is paid a 2 percent bonus based on the company’s net income.

Required

Prepare an income statement using absorption costing.

Prepare an income statement using variable costing.

Determine the manager’s bonus using each approach. Which approach would you recommend for internal reporting?

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