# The Excel worksheet form that follows is to be used to recreate portions of Review Problem 1.

## Question:

The Excel worksheet form that follows is to be used to recreate portions of Review Problem 1. Download the workbook containing this form from Connect. On the website you will also receive instructions about how to use this worksheet form.

You should proceed to the requirements below only after completing your worksheet. The LIFO inventory flow assumption is used throughout this problem.
Required:
1. Check your worksheet by changing the units sold in the Data to 6,000 for Year 2. The cost of goods sold under absorption costing for Year 2 should now be $240,000. If it isn't, check cell C41. The formula in this cell should be = IF (C26 Why is the absorption costing net operating income now equal to the variable costing net operating income in Year 2? 2. Enter the following data from a different company into your worksheet: Is the net operating income under variable costing different in Year 1 and Year 2? Why or why not? Explain the relation between the net operating income under absorption costing and variable costing in Year 1. Explain the relation between the net operating income under absorption costing and variable costing in Year 2. 3. At the end of Year 1, the company's board of directors set a target for Year 2 of net operating income of$500,000 under absorption costing. If this target is met, a hefty bonus would be paid to the CEO of the company. Keeping everything else the same from requirement 2, change the units produced in Year 2 to 50,000 units. Would this change result in a bonus being paid to the CEO? Do you think this change would be in the best interests of the company? What is likely to happen in Year 3 to the absorption costing net operating income if sales remain constant at 12,000 units per year?

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