Variable costing versus absorption costing Lange Company incurred manufacturing overhead cost for the year as follows.

The company produced 1,500 units and sold 1,000 of them at $180 per unit. Assume that the production manager is paid a 2 percent bonus based on the company's net income.
Required
a. Prepare an income statement using absorption costing.
b. Prepare an income statement using variable costing.
c. Determine the manager's bonus using each approach. Which approach would you recommend for internal reporting and why?

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Direct materials $40/unit $28/unit Direct labor Manufacturing overhead Variable Fixed ($20/unit for 1,500 units) Variable selling and admin. expenses Fixed selling and admin. expenses $ 12/unit $ 30,000 $ 8,000 $16,000