Earth'sBestLight (EBL), a producer ofenergy-efficient lightbulbs, expects that demand will increase markedly over the next decade. Due to the high fixed costs involved in thebusiness, EBL has decided to evaluate its financial performance using absorption costing income. Theproduction-volume variance is written off to cost of goods sold. The variable cost of production is $2.10 per bulb. Fixed manufacturing costs are $1,020,000 per year. Variable and fixed selling and administrative expenses are $0.40 per bulb sold and $230,000, respectively. Because its light bulbs are currently popular with environmentally consciouscustomers, EBL can sell the bulbs for $9.70 each. EBL is deciding among various concepts of capacity for calculating the cost of each unit produced. Its choices are asfollows:
P9-42 (similar to) Question Help Earth's Best Light (EBL), a producer of energy-efficient light bulbs, expects that demand will increase markedly over the next decade. Due to the high fixed costs involved in the business, EBL has decided to evaluate its financial performance using absorption costing income. The production-volume variance is written off to cost of goods sold. The variable cost of production is $2.10 per bulb. Fixed manufacturing costs are $1,020,000 per year. Variable and fixed selling and administrative expenses are $0.40 per bulb sold and $230,000, respectively. Because its light bulbs are currently popular with environmentally conscious customers, EBL can sell the bulbs for $9.70 each. EBL is deciding among various concepts of capacity for calculating the cost of each unit produced. Its choices are as follows: (Click the icon to view the capacity information.) i Data Table X Read the requirements. Requirement 1. Calculate the inventoriable cost per unit using each level of capacity to compute fixed manufacturing cost per unit. Theoretical capacity 850,000 bul Begin by determining the formula to calculate the inventoriable cost per unit. (Abbreviations used: mfg = manufacturing, admin. = administrat Practical capacity 425,000 bulbs Fixed mfg overhead rate Variable production cost = Inventoriable cost per unit Normal capacity 272,000 bulbs (average expected output for the next three years) Now calculate the inventoriable cost per unit at each level of capacity. Master-budget capacity 212,500 bulbs expected production this year Inventoriable Print Done Capacity type cost per unit Theoretical $ 3.30 Practical 4.50 i Requirements - X Normal $ 5.85 Master Budget 6.90 Requirement 2. Suppose EBL actually produces 250,000 bulbs. Calculate the production-volume variance using each level of capacity to compute 1. Calculate the inventoriable cost per unit using each level of capacity to compute fixed manufacturing cost per unit. Determine the formula that is used to calculate the production-volume variance. (Abbreviation used: mfg = manufacturing.) 2. Suppose EBL actually produces 250,000 bulbs. Calculate the Production-volume production-volume variance using each level of capacity to compute the fixed manufacturing overhead allocation rate. Total fixed mfg overhead - ( Fixed mfg overhead rate Actual production ) = variance 3. Assume EBL has no beginning inventory. If this year's actual sales are Next calculate the production-volume variance at each level of capacity. Label each variance as favorable (F) or unfavorable (U). 212,500 bulbs, calculate operating income for EBL using each type of capacity to compute fixed manufacturing cost per unit. Production Capacity tvne volume-variance Print Done Choose from any list or enter any number in the input fields and then click Check Answer. ? parts remaining Clear All Check AnswerRequirement 2. Suppose EBL actually produces 250,000 bulbs. Calculate the production-volume variance using each level of capacity to compute the fixed manufacturing overhead allocation rate. Determine the formula that is used to calculate the production-volume variance. (Abbreviation used: mfg = manufacturing.) Production-volume Total fixed mfg overhead - ( Fixed mfg overhead rate x Actual production )= variance Next calculate the production-volume variance at each level of capacity. Label each variance as favorable (F) or unfavorable (U). Production Capacity type volume-variance Theoretical Practical Normal Master-Budget
