Question

Gibson Manufacturing pays its production managers a bonus based on the company’s profitability. During the two most recent years, the company maintained the same cost structure to manufacture its products.

Year	Units Produced			Units Sold
Production and Sales
Year 2		4,000			4,000
Year 3		6,000			4,000
Cost Data
Direct materials				$	13.50	per unit
Direct labor				$	22.90	per unit
Manufacturing overhead—variable				$	11.10	per unit
Manufacturing overhead—fixed				$	102,600
Variable selling and administrative expenses				$	8.00	per unit sold
Fixed selling and administrative expenses				$	58,000

(Assume that selling and administrative expenses are associated with goods sold.)

Gibson sells its products for $109.50 per unit.

Required

Prepare income statements based on variable costing for Year 2 and Year 3.

Year 2:

Variable Costs:

"All Left sided column must be filled"

Year 3:

Variable Costs:

"All left handed columns must be filled"

Answer 1

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