Cranbrook Inc. Cranbrook Inc. manufactures telephone handsets for use in homes as part of consumers' landline phone systems. Because of the increasing use of mobile phones, Cranbrook's production volumes have been declining: Year Prod uction volume 2016 110,000 2017 90,000 2018 60,000 Prices for these handsets have been declining over this period as competition for the declining number of customers has intensified. Cranbrook incurs annual overhead (capacity) costs of $2M/year to operate this plant. Management indicates that normal capacity of the plant (for GAAP reporting purposes) is 120,000 units/year. Practical capacity is 115,000 units/year. a. Compute the most useful measure of cost of excess capacity for internal management decision-making purposes in each year (not GAAP reporting purposes). b. How would your answer change if the $2M of capacity costs is treated as variable manufacturing overhead for GAAP reporting purposes (that is, under absorption costing)? c. Peter Rabbit, Cranbrook's production manager, argues that the full $2M of annual capacity cost should be allocated to product in each year in making pricing decisions failing to do so, he argues, would mean that Cranbrook would not recover all of its costs in prices charged to customers. Do you agree? Explain briefly