Motivational considerations in denominator-level capacity selection

1. If the plant manager of the Austin Brewery gets a bonus based on operating income, which denominator- level capacity concept would he prefer to use? Explain.

2. What denominator-level capacity concept would Lucky Lager prefer to use for U.S. income-tax reporting? Explain.

3. How might the IRS limit the flexibility of an absorption-costing company like Lucky Lager attempting to minimize its taxable income?