Ianswer requirement 3

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 $1,170,000 per year. Variable and fixed selling and administrative expenses are $0.40 per bulb sold and $220,000, respectively. Because its light bulbs are currently popular with environmentally-conscious customers, GES can sell the bulbs for $9.20 each. GES is deciding among various concepts of capacity for calculating the cost of each unit produced. (Click the icon to view the capacity information.) Click the icon to view amounts previously calculated by GES.) Read the requirements. bulb. Fixed manufacturing costs are $1,170,000 per year. Variable and fixed selling and administrative expenses are $0.40 per bulb sold and $220,000, respectively. Because its light bulbs are currently popular with environmentally-conscious customers, GES can sell the bulbs for $9.20 each. GES is deciding among various concepts of capacity for calculating the cost of each unit produced. (Click the icon to view the capacity information.) Click the icon to view amounts previously calculated by GES.) Read the requirements. Requirement 1. If GES sells all 300,000 bulbs produced, what would be the effect on operating income of using each type of capacity as a basis for calculating manufacturing cost per unit? (Label each variance as favorable (F) or unfavorable (U).) Requirement 2. Compare the results of operating income at different capacity levels when 225,000 bulbs are sold and when 300,000 bulbs are sold. What conclusion can you draw from the comparison? If the manager of GES produces and sells 300,000 bulbs, then all capacity levels will result in Comparing the operating income results at 225,000 and 300,000 bulbs sold, it is dear that for a given level of overproduction relative to sales, the manager's performance will appear better if he/she uses as the denominator a level that is this example, seting the denominator to equal the minimizes the loss to the manager from production quantity of 300,000 bulbs. Requirement 3. Using the original data (that is, 300,000 units produced and 225,000 units sold) if GES had used the proration approach to allocate the production-volume variance, what would Reference Data table Requirement 3. Using the original data (that is, 300,000 units produced and 225,000 units sold) if GES had used the proration approach to allocate the production-volume variance, what would operating income have been under each level of capacity? (Assume that there is no ending work in process.) Theoretical Revenue Less: Cost of Goods Sold Production-Volume Variance Gross Margin Variable Selling Fixed Selling Operating Income