Operating income effects of alternative denominator-level concepts (continuation of 9-30). In 2007, the brewery of Lucky Lager showed these results:

Unit data in barrels:

Beginning inventory,January 1, 2007 0 Production 2,600,000 Ending inventory, December 31, 2007 200,000 The brewery had actual costs of Cost data:

Variable manufacturing $144,456,000 Fixed manufacturing overhead $48,758,400 The sales division of Lucky Lager purchased 2,400,000 barrels in 2007 at the $82 per barrel rate.

All manufacturing variances are written off to cost of goods sold in the period in which they are incurred.

Required 1. Compute the operating income of the brewery using the following:

(a) theoretical capacity,

(b) practical capacity, and

(c) normal capacity utilization denominator-level capacity concepts.
Explain any differences between (a), (b), and (c).
2. What denominator-level concept would Lucky Lager prefer for income tax reporting?
Explain.
3. Explain the ways in which the Canada Revenue Agency might restrict the flexibility of a company like Lucky Lager, which uses absorption costing to reduce its reported taxable income.