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Answer the following questions. Be specfic as possible a) "There should be a strong relationship between the factory overhead incurred and the cost allocation base chosen for its application. Why? (3 points) b) "Absorption costing income exceeds variable costing income when the number of units sold exceeds the number of units produced. Do you agree? Explain (3 points) c) What are some reasons for differences between the amounts of incurred and applied overhead? [2 points) d) Suppose a manager is paid a bonus only if absorption costing operating income exceeds the budget. If operating income through November is slightly below budget, what might the manager do in December to increase their chance of getting the bonus? (3 points) e) Why are company with small level of inventory generally unconcerned with the choice of variable or absorption costing? (3 points) f) Sigma Company manufactures a variety of special knobs for numerous customers. Annual estimated manufacturing overhead costs are S4 million, and the capacity level of machine hours is 120,000. The company uses planned machine hours as the cost driver in determining the plantwide cost driver rate. Until last year, the company used approximately 100,000 machine hours per year. Last year, competition increased and demand for the company's knobs fell. In the face of continuing competition, the company estimates that it will use 80,000 machine hours in the coming year. The company sets its prices at 150% of production cost per unit. 1. What is likely to happen if demand decreases further and Sigma continues to re-compute its cost driver rate using the same approach? (3 points) II. Advise the company on choosing a cost driver quantity for computing cost driver rates and explain why you advocate your choice of quantity (5 points) Mh Answer the following questions. Be specfic as possible a) "There should be a strong relationship between the factory overhead incurred and the cost allocation base chosen for its application. Why? (3 points) b) "Absorption costing income exceeds variable costing income when the number of units sold exceeds the number of units produced. Do you agree? Explain (3 points) c) What are some reasons for differences between the amounts of incurred and applied overhead? [2 points) d) Suppose a manager is paid a bonus only if absorption costing operating income exceeds the budget. If operating income through November is slightly below budget, what might the manager do in December to increase their chance of getting the bonus? (3 points) e) Why are company with small level of inventory generally unconcerned with the choice of variable or absorption costing? (3 points) f) Sigma Company manufactures a variety of special knobs for numerous customers. Annual estimated manufacturing overhead costs are S4 million, and the capacity level of machine hours is 120,000. The company uses planned machine hours as the cost driver in determining the plantwide cost driver rate. Until last year, the company used approximately 100,000 machine hours per year. Last year, competition increased and demand for the company's knobs fell. In the face of continuing competition, the company estimates that it will use 80,000 machine hours in the coming year. The company sets its prices at 150% of production cost per unit. 1. What is likely to happen if demand decreases further and Sigma continues to re-compute its cost driver rate using the same approach? (3 points) II. Advise the company on choosing a cost driver quantity for computing cost driver rates and explain why you advocate your choice of quantity (5 points) Mh

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