Moncier 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.

(Assume that selling and administrative expenses are associated with goods sold.) Moncier's sales revenue for both years was $230,000.
Required
a. Prepare income statements based on absorption costing for the years 2011 and 2012.
b. Since Moncier sold the same amount in 2011 and 2012, why did net income increase in 2012?
c. Discuss management's possible motivation for increasing production in 2012.
d. Determine the costs of ending inventory for 2012. Comment on the risks and costs associated with the accumulation of inventory.
e. Based on your answers to Requirements b and c, suggest a different income statement format and prepare income statements for 2011 and 2012 using your suggested format.

Units Produced Year Units Sold Production and Sales 2011 2012 4,000 4,000 4,000 6,000 Cost Data Direct materials Direct labor Manufacturing overhead-variable Manufacturing overhead-fixed Variable selling and administrative expenses Fixed selling and administrative expenses $8 per unit $12 per unit $4 per unit $72,000 $4 per unit sold $30,000