Johnson Corporation is a manufacturer of computer accessories. It uses absorption costing based on standard costs and reports the following data for 2014: (Click the icon to view the data.) There are no price, spending, or efficiency variances. Actual operating costs equal budgeted operating costs. The production-volume variance is written off to cost of goods sold. For each choice of denominator level, the budgeted production cost per unit is also the cost per unit of beginning inventory. Read the requirements. 1 on iRequirements 1. What is the production-volume variance in 2014 when the denominator level is (a) theoretical capacity, (b) practical capacity, and (c) normal capacity utilization? 2. Prepare absorption costing-based income statements for Johnson Corporation using theoretical capacity, practical capacity, and normal capacity utilization as the denominator levels. 3. Why is the operating income under normal capacity utilization lower than the other two scenarios? 4. Reconcile the difference in operating income based on theoretical capacity and practical capacity with the difference in fixed manufacturing overhead included in inventory. x Print Done ased income statements Tor Johnson Corporation using theoretical Capacity practical capacity and normal capacuTV TUZ Requirement 1. What is the production-volume variance in 2014 when the denominator level is (a) theoretical capacity, (b) practical capacity, and (c) normal capacity utilization? Begin by determining the formula that is used to calculate the production-volume variance. (Abbreviations used: Bdgt = Budgeted, Mfg. = Manufacturing.) Capacity type (a) Theoretical (b) Practical (c) Normal Production- X Next calculate the production-volume variance for each denominator level (a) theoretical capacity, (b) practical capacity, and (c) normal capacity utilization. Label each variance as favorable (F) or unfavorable (U). volume variance Production- volume variance Requirement 2. Prepare absorption costing-based income statements for Johnson Corporation using theoretical capacity, practical capacity, and normal capacity utilization as the denominator levels. Prepare the income statements one at a time, beginning with theoretical. Label each variance as favorable (F) or unfavorable (U). Revenue Cost of goods sold Beginning inventory Variable manufacturing costs Allocated fixed mfg overhead Cost of goods available for sale Ending inventory Production-volume variance Total cost of goods sold Gross margin Operating costs Operating income (loss) Theoretical Practical Normal Requirement 3. Why is the operating income under normal capacity utilization lower than the other two scenarios? During 2014 Johnson had in inventory levels. The allocated to each unit of production, and, when those units are sold, the capacity of the three, hence in this year, when production was than sales, the Normal utilization capacity is the absorption-costing based operating income is the smallest when normal capacity utilization is used as the denominator level. Requirement 4. Reconcile the difference in operating income based on theoretical capacity and practical capacity with the difference in fixed manufacturing overhead included in inventory. (Abbreviation used: Mfg. = Manufacturing.) Less: Difference in operating income Less: Multiply by: = Difference in fixed mfg overhead included in inventory