020 Absorption costing and productionvolume variancealternative capacity bases. Earth Light First (ELF), a producer of energyefficient light bulbs, expects that demand will increase markedly over the next decade. Due to the high fixed costs involved in the business, ELF has decided to evaluate its financial performance using absorption costing income. The producu'onvolurne variance is written off to COGS. The variable cost of production is $2.50 per bulb. Fixed manufacturing costs are $1,000,000 per year. variable and ned selling and administrative expenses are $0.25 per bulb sold and $2 50,000, respectively. Because its light bulbs are ciu'reutly popular viith enyironrnentally conscious customers, ELF can sell the bulbs for $0 each. ELF is deciding whether to use, when calculaiing the cost of each unit produced, Theoretical capacity 800,000 bulbs Practical capacity 500,000 bulbs Normal capacity 250,000 bulbs [average production for the nerd three years) Masterbudget capacity 200,000 bulbs produced this year 1. Calculate the inventoriabie cost per unit using each level of capacity to compute fixed manufacturing cost per unit. 2. Calculate the productionvolume variance using each level of capacity to compute the fixed manufachuing overhead allocation rate and this year's production of 220,000 bulbs. 3. Assuming ELF has no beginning inventory, calculate operating income for ELF using each type of capacity to compute xed manufacturing cost per unit and this year's sales of 200,000 bulbs