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CarpetAuthority Company manufacturers a professional-grade vacuum cleaner and began operations in 2020. For 2020, CarpetAuthority budgeted to produce and sell 28,000 units. The company had noprice, spending, or efficiency variances and writes offproduction-volume variance to cost of goods sold. Actual data for 2020 are given asfollows:

A B

1 Units produced 23,000

2 Units sold 18,000

3 Selling price $420

4 Variable costs: -

5 Manufacturing cost per unit produced: -

6 Direct material $25

7 Direct manufacturing labor $25

8 Manufacturing overhead $50

9 Marketing cost per unit sold $44

10 Fixed costs: -

11Manufacturing costs $1,400,000

12 Administrative costs $946,100

13 Marketing costs $1,479,000

1.

Prepare a 2020 income statement for CarpetAuthority Company using variable costing.

2.

Prepare a 2020 income statement for CarpetAuthority Company using absorption costing.

3.

Explain the differences in operating incomes obtained in requirements 1 and 2.

4.

CarpetAuthority's management is considering implementing a bonus for the supervisors based on gross margin under absorption costing. What incentives will this bonus plan create for thesupervisors? What modifications could CarpetAuthority management make to improve such aplan? Explain briefly.

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