Sampson Company operates a manufacturing facility where several products are made. Deach product is considered a business segment, and the product managers have the opportunity to receive a bonus based on the profit of the segment. Franco Hopper is the manager for the scissors product line. Production and sales for the scissors product line loene for the past three years are shown below:
Year 1: Year 2: Year 3:
Units produced 100,000 125,000 160,000
Units sold 100,000 100,000 100,000
Sales price per unit 12.00 12.00 12.00
Variable manufacturing cost per unit 5.00 5.00 5.00
Total fixed manufacturing cost 200,000 200,000 200,000
Hopper’s bonus is .5% of the gross profit of the scissors product line, based on absorption costing. Upper management is discussing changing the bonus system so that bonuses are based on operating income using variable costing. Hopper is opposed to this change and has been trying to convince the other product managers to join him in voicing their opposition. There are no beginning inventories in year 1.
- Calculate Hopper bonus based on the current plan