The following questions will help you analyze the information for this problem. Do not turn in your answers to these questions unless your professor asks you to do so.
• A. Suppose each plant manager receives a bonus based on absorption costing
operating income that is 5% of operating income. Calculate the fourth quarter bonus for each manager. Explain how this bonus plan might affect the managers’ production
decisions.
• B. Examine changes in sales relative to cost of goods sold between the two quarters.
What are two possible explanations for the San Jose plant’s profit increase during the
fourth quarter?
• C. Assume that variable costs in this industry are an immaterial part of cost of goods
sold. Recast the fourth quarter financial statements using the variable costing approach.
REQUIRED: Suppose you are the cost accountant for Palm Producers. Turn in your answers to the following.
• E. Write a memo to the CFO recommending the type of income statement that would be best for monitoring divisional performance. Attach to the memo a schedule showing any computations that might be useful to the CFO. As appropriate, refer to the schedule in the memo.