Reference no: EM132605993

Artsy Design Sdn. Bhd. is a manufacturing company that produces and sells women ethnic handbags. It begins operation in 2019 and aspires to become a leading, thriving company in the textile industry in the next five years. For 2019, Artsy Design budgeted to produce and sell 20,000 units. Any adjustments for over- or under-absorbed overheads are made to cost of goods sold.

Actual data for the year ended 31 December 2019 are given as follows:

Details RM

Units produced:                              18,000

units Units sold:                            17,500 units

Selling price                                         210.00

Variable costs:

Manufacturing cost per unit produced

Direct materials                         15.00

Direct manufacturing labour        12.00

Manufacturing overhead              30.00

Marketing cost per unit sold           23.00

Fixed costs:

Manufacturing costs              550,000.00

Administrative costs                 482,725.00

Marketing                                683,200.00

Required:

Question a. Prepare income statements under variable and absorption costing for the year ended December 31, 2019.

Question b. Explain the differences in operating incomes obtained in (a).

Question c. Artsy Design's management is considering implementing a bonus for the supervisors based on gross margin under absorption costing. What incentive will this create for the supervisors? What improvement can be made by the management to improve the bonus plan? Explain briefly.