Global Energy Saver (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 $1,015,000 per year. Variable and fixed selling and administrative expenses are $0.20 per bulb sold and $220,000, respectively. Because its light bulbs are currently popular with environmentally conscious customers, GES can sell the bulbs for $9.60 each. i (Click the icon to view the capacity information.) Requirements 1. Calculate the inventoriable cost per unit using each level of capacity to compute fixed manufacturing cost per unit. 2. Calculate the production-volume variance using each level of capacity to compute the fixed manufacturing overhead allocation rate and this year's production of 210,000 bulbs. 3. Assuming GES has no beginning inventory, calculate operating income for GES using each type of capacity to compute fixed - X manufacturing cost per unit and this year's sales of 175,000 bulbs. More info GES is deciding whether to use, when calculating the cost of each unit produced: Normal $ 5.90 Theoretical capacity 725,000 bulbs Master-Budget $ 8.20 Practical capacity 406,000 bulbs Normal capacity 290,000 bulbs (average production for the next three years) Requirement 2. Determine the formula that is used to calculate the production volume variance. Master-budget capacity 175,000 bulbs produced this year Production Volume Total Fixed Manufacturing Fixed Manufacturing Variance Overhead Overhead Rate Actual Production Next calculate the production-volume variance at each level of capacity. Label each variance as favourable (F) or unfavourable (U). Production Volume Print Done Capacity Type Variance Theoretical 721,000 Practical 490,000 U Normal 280,000 Master-Budget $ 203,000 F Requirement 3. Calculate the operating income for each type of capacity. We will do the operating income calculations one at a time, beginning with theoretical. Label each variance as favourable (F) or unfavourable (U). Theoretical Practical Normal Master-Budget Revenue Less: Cost of Goods Sold Production Volume Variance Gross Margin Variable Selling Fixed Selling Operating Income