Burrito-Blast makes bean and cheese burritos that it sells to grocery stores. The burritos sell for $1 each. Burrito-Blast had beginning inventory of $20,000 on June 1 for 80,000 burritos. During June the company produced 500,000 burritos. June production costs are as follows:

-The company's June 30 ending inventory consists of 20,000 burritos. The sales manager receives a 5% bonus based on monthly operating income. Which method would result in the larger bonus?

Question

Burrito-Blast makes bean and cheese burritos that it sells to grocery stores. The burritos sell for $1 each. Burrito-Blast had beginning inventory of $20,000 on June 1 for 80,000 burritos. During June the company produced 500,000 burritos. June production costs are as follows:

-The company's June 30 ending inventory consists of 20,000 burritos. The sales manager receives a 5% bonus based on monthly operating income. Which method would result in the larger bonus?

Quizplus · Accepted Answer

Absorption costing includes both variable and fixed manufacturing overhead in the cost of inventory, which can result in higher inventory values and lower cost of goods sold when compared to variable costing. This can lead to higher reported operating income for periods with ending inventory, potentially resulting in a larger bonus for the sales manager.

Burrito-Blast Makes Bean and Cheese Burritos That It Sells to Grocery