Planet Light First (PLF), a producer of energy-efcient light bulbs, expects that demand will increase markedly over the next decade. Due to the high xed costs involved in the business, PLF has decided to evaluate its nancial performance using absorption costing income. The production-volume variance is written off to cost of goods sold. The variable cost of production is $2.70 per bulb. Fixed manufacturing costs are $1,015,000 per year. Variable and xed selling and administrative expenses are $0.25 per bulb sold and $220,000, respectively. Because its light bulbs are currently popular with environmentally conscious customers, PLF can sell the bulbs for $9.80 each. PLF 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.) Read the uirements. Requirement 1. Calculate the inventoriable cost per unit using each level of capacity to compute xed manufacturing cost per unit. Begin by determining the formula to calculate the inventoriable cost per unit. (Abbreviations used: mfg = manufacturing, admin. = administration.) Fixed mfg overhead rate + Variable production cost = lnventoriable cost per unit Now calculate the inventoriable cost per unit at each level of capacity. lnventoriable Capacity type cost per unit Theoretical $ 4.10 Practical $ 5.20 Normal $ 6.20 Master Budget $ 8.50 Requirement 2. Suppose PLF 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 xed 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 $ 665,000 U Practical $ 390,000 U Normal $ 140,000 U Master-Budget $ 435,000 F Requirement 3. Assume PLF has no beginning inventory. If this year's actual sales are 175,000 bulbs (and production is 250,000 bulbs), calculate operating income for PLF 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). Theoretical Practical Normal Master budget Revenue Less: Cost of goods sold Production-volume variance Gross margin Variable selling Fixed selling Operating incomePlanet Light First (PLF), a producer of energy-efcient light bulbs, expects that demand will increase markedly over the next decade. Due to the high xed costs involved in the business, PLF has decided to evaluate its nancial performance using absorption costing income. The production-volume variance is written off to cost of goods sold. The variable cost of production is $2.70 per bulb. Fixed manufacturing costs are $1,015,000 per year. Variable and xed selling and administrative expenses are $0.25 per bulb sold and $220,000, respectively. Because its light bulbs are currently popular with environmentally conscious customers, PLF can sell the bulbs for $9.80 each. PLF is deciding among various concepts of capacity for calculating the cost of each unit produced. Its _ choices are as follows: Data table Theoretical capacity 725,000 bulbs Practical capacity 406,000 bulbs Normal capacity 290,000 bulbs (average expected output for the next 3 years) ion is 250,000 bulbs), calculate operating income for PLF using each type of Master-budget capacity 175,000 bulbs expected production this year , beginning with theoretical. Label each variance as favorable (F) or -153