K Earth Light First (ELF), 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, ELF 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 $2.20 per bulb Fixed manufacturing costs are $1,020,000 per year. Variable and fixed selling and administrative expenses are 50 35 per bulb sold and $260,000, respectively. Because its light bulbs are curently popular with environmentally conscious customers, ELF can sell the bulbs for $9.60 each. ELF is deciding among various concepts of capacity for calculating the cost of each unit produced. Its choices are as follows: (Cick the icon to view the capacity information.) Read the requirements Requirements - X Data table Theoretical capacity 650,000 bulbs Practical capacity 425,000 bulbs Normal capacity Master-budget capacity 272,000 bulbs (average expected output for the next 3 years) 212,500 bulbs expected production this year Print Done 1. Calculate the inventoriable cost per unit using each level of capacity to compute fixed manufacturing cost per unit. 2. Suppose ELF actually produces 250,000 bulbs Calculate the production-volume variance using each level of capacity to compute the fixed manufacturing overhead allocation rate. income 3. Assume ELF has no beginning inventory. If this year's actual sales are 212,500 bulbs (and production is 250,000 bulbs), calculate operating for ELF using each type of capacity to compute fixed manufacturing cost per unit Print Done head alinralinn rain Requirement 1. Calculate the inventoriable cost per unit using each level of capacity to compute fixed manufacturing cost per unit. Begin by determining the formula to calculate the inventoriable cost per unit (Abbreviations used: mfg manufacturing, admin administration) Now calculate the inventoriable cost per unit at each level of capacity. Inventoriable cost per unit Capacity type Theoretical Practical Inventoriable cost per unit Normal Master Budget Requirement 2. Suppose ELF 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 variance Next calculate the production-volume variance at each level of capacity. Label each variance as favorable (F) or unfavorable (U). Capacity type Theoretical Production volume-variance Practical Normal Master-Budget Requirement 3. Assume ELF has no beginning inventory. If this year's actual sales at 212,500 bulbs (and production is 250,000 bulbs), calculate operating income for ELF using each type of capacity to compute fixed manufacturing cost per unit. 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 favorable (F) or unfavorable (U) Revenue Less: Cost of goods sold Production-volume variance Gross margin Variable selling Fixed selling Operating income Theoretical Practical Normal Master budget