Hats produces sun visors. Production data for the first month follow:

-The production manager will receive a 3% salary bonus if production costs per unit under $3.00. After reviewing October results, he decides to increase production in November to 21,000 units. If demand for the product is stable, which accounting method is the company most likely using to determine the manager's bonus?

Question

Hats produces sun visors. Production data for the first month follow:

-The production manager will receive a 3% salary bonus if production costs per unit under $3.00. After reviewing October results, he decides to increase production in November to 21,000 units. If demand for the product is stable, which accounting method is the company most likely using to determine the manager's bonus?

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing costs are spread over more units when production increases, potentially lowering the cost per unit and making it easier to achieve the bonus threshold.

Hats Produces Sun Visors