1. If Kappa sells all 350,000 CFLs produced, what would be the effect on operating income of using each type of capacity as a basis for calculating manufacturing cost per unit?
2. Compare the results of operating income at different capacity levels when 275,000 CFLs are sold and when 350,000 CFLs are sold. What conclusion can you draw from the comparison?
3. Using the original data (i.e., 350,000 units produced and 275,000 units sold) if Kappa had used the proration approach to allocate the production-volume variance, what would operating income have been under each level of capacity? (Assume that there is no ending work in process.)