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Hi everyone!
I have a question, hope anyone can help me! many thanks!The last few years, my bonus as a production manager has been based on the report or the profit figure when we’ve been using absorbtion profit reporting and now you’re saying my bonus is going to be base on a direct income statement profit. I’m just wondering can you explain what’s going to mean for me this year and possibly, maybe the years to come how that is going to affect my bonus in the long term?
If this is a practical question (as opposed to an exam question – and this could not be asked in the exam) then you need to ask what they mean by ‘direct income statement profit’! If they mean the profit in the financial accounts, then in financial accounts we are required to use absorption costing to value inventories and therefore the profit would be the same either way!
Thank you so much for your answer!
Yes, it is my practical question. Could you explain more about the mean of bonus is based on direct income statement, please? because they dont use the absorption report from now.I can’t explain, because as I wrote before it depends what they mean by ‘the direct income statement’. It is not a standard phrase and without knowing what they intend to mean by it I cannot really comment.
As I wrote in my previous reply, financial accounting income statements have to use absorption costing, so unless your company are defining things differently, then the absorption costing profit would be the same as the financial accounting profit.
You are going to have to ask them exactly what they mean.
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