A company has a normal production level of 100,000 units per year, and production that is more than +/€”5% from this level is considered abnormal. Fixed overhead costs are $500,000.
Required:
For the following production levels, determine the amount of fixed overhead that should be capitalized in inventories and the amount that should be directly expensed. (€œDirectly expensed€ does not include amounts recognized when the units are sold.)

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Production level Amount capitalized Amount directly expensed nto inventories 120,000 units 110,000 units 100,000 units 98,000 units 90,000 units 80,000 units 0 units