In 2014, its first year of operations, Campus Company produced 4,000 tons of plastic and sold 3,000 tons. In 2015, the company produced 4,500 tons of plastic and sold 3,000 tons. In each year, the selling price per ton was $2,000. Variable manufacturing costs were 15% of the sales price of units produced, variable selling expenses were 10% of the selling price of units sold, fixed manufacturing costs were $2,400,000 and fixed administrative expenses were $600,000.
Required:
(a) Prepare variable costing comparative income statement for 2014 and 2015.
(b) Prepare absorption costing comparative income statement for 2014 and 2015.
(c) Reconcile the differences, each year, in operating income under the two costing methods.
(d) Explaining in detail the reasons for the differences in 2014 and 2015 operating income under the two costing methods. Also state which method should be used to calculate the manager's bonus and why.