At the end of Year 1, the company's board of directors set a target for Year 2 of net operating income of $140,000 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 part (2) above, double the units produced in Year 2 to 5,000 units.
1.Would this change result in a bonus being paid to the CEO?
2.What is the net operating income (loss) in Year 2 under absorption costing?
3.Would this doubling of production in Year 2 be in the best interests of the company if sales are expected to continue to be 2,600 units per year?