GES, 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, GES 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 $ 2.40 per bulb. Fixed manufacturing costs are $ 1, 085, 000per year. Variable and fixed selling and administrative expenses are $ 0.20 per bulb sold and $ 270,000 respectively. Because its light bulbs are currently popular with environmentally conscious customers GES can sell the bulbs for $ 9.80 each.GES is deciding among various concepts of capacity for calculating the cost of each unit produced. Its choices are as follows:

Theoretical capacity Practical capacity Normal capacity 700,000 bulbs 434,000 bulbs 310,000 bulbs (average expected output for the next three years) Master budget capacity 175,000 bulbs expected production this year