Assuming no beginning inventory and monthly production is greater than sales. Management who are paid a bonus based on operating income would receive a larger bonus under variable costing, because only the variable costs will be deducted in deriving operating income.

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Under variable costing, only variable costs are deducted from sales to determine contribution margin, and then fixed costs are deducted to determine operating income. If production is greater than sales, some fixed costs associated with production would not be immediately expensed under absorption costing (they would be part of inventory and expensed when sold), potentially leading to higher operating income under absorption costing than under variable costing in periods of increasing inventory. Thus, management could receive a larger bonus under absorption costing in this scenario, not variable costing.

Assuming No Beginning Inventory and Monthly Production Is Greater Than