Cleary is a manufacturer of magic kits. It uses absorption costing based on standard costs and reports the following data for 2017: E (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. Requirement 1. What is the production-volume variance in 2017 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.) Production- X = volume variance Data Table Requirements Theoretical capacity Practical capacity Normal capacity utilization Selling price Beginning inventory Production Sales volume Variable budgeted manufacturing cost Total budgeted fixed manufacturing costs Total budgeted operating (non-manuf.) costs (all fixed) 240,000 units 200,000 units 172,500 units $44 per unit 30,000 units 190,000 units 200,000 units $4 per unit $2,760,000 $200,000 1. What is the production-volume variance in 2017 when the denominator level is (a) theoretical capacity, (b) practical capacity, and (C) normal capacity utilization? 2. Prepare absorption costing-based income statements for Cleary 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. Print Done Print Done