Hats produces sun visors. Production data for the first month follow: -If employees receive a 3% salary bonus for keeping production costs per unit under $3.00, which method would result in a bonus? A) Variable costing B) Absorption costing C) Neither D) Both would yield the same bonus.

Question

Quizplus · Accepted Answer

Variable costing includes only variable production costs (direct materials, direct labor, and variable manufacturing overhead) in the cost of a unit of product. Keeping production costs under $3.00 per unit would likely be more achievable under variable costing, as it does not include fixed manufacturing overhead in the unit cost, potentially resulting in lower per unit costs and thus a bonus for employees. Absorption costing, on the other hand, includes both variable and fixed manufacturing overhead in the cost of a unit, which could result in higher per unit costs, making it harder to keep the costs under $3.00 and less likely to result in a bonus.

Hats Produces Sun Visors