PralineYum uses standard costing to produce a particularly popular type of candy. PralineYum's President, Derrick Tarver was unhappy after reviewing the income statements for the first 3 years of business. He said, "I was told by our accountants-and in fact, I have memorized-that our breakeven volume is 31,000 units. I was happy that we reached that sales goal in each of our first 2 years. But here's the strange thing: In our first year, we sold 31,000 units and indeed we broke even. Then, in our second year we sold the same volume and had a signficant, positive operating income. I didn't complain, of course. . but here's the bad part. In our third year, we sold 10% more candy, but our operating income dropped by nearly 90% from what it was in the second year! We didn't change our selling price or cost structure over the past 3 years and have no price, efficiency, or spending variances ... so what's going on?!" (Click the icon to view the absorption costing income statements for the three years.) Read the requirements. Requirement 1. What denominator level is PralineYum using to allocate fixed manufacturing costs to the candy? How is PralineYum treating any favorable or unfavorable production-volume variance at the end of the year? Explain your answer briefly. The denominator level used to allocate fixed manufacturing costs is units. Data table Data table Requirements 1. What denominator level is PralineYum using to allocate fixed manufacturing costs to the candy? How is PralineYum treating any favorable or unfavorable production-volume variance at the end of the year? Explain your answer briefly. 2. How did PralineYum's accountants arrive at the breakeven volume of 31,000 units? 3. Prepare a variable costing-based income statement for each year. Explain the variation in the variable costing operating income for each year based on contribution margin per unit and sales volume. 4. Reconcile the operating incomes under variable costing and absorption costing for each year, and use this information to explain to Derrick Tarver the positive operating income in 2020 and the drop in operating income in 2021. PralineYum uses standard costing to produce a particularly popular type of candy. PralineYum's President, Derrick Tarver was unhappy after reviewing the income statements for the first 3 years of business. He said, "I was told by our accountants-and in fact, I have memorized-that our breakeven volume is 31,000 units. I was happy that we reached that sales goal in each of our first 2 years. But here's the strange thing: In our first year, we sold 31,000 units and indeed we broke even. Then, in our second year we sold the same volume and had a signficant, positive operating income. I didn't complain, of course. . but here's the bad part. In our third year, we sold 10% more candy, but our operating income dropped by nearly 90% from what it was in the second year! We didn't change our selling price or cost structure over the past 3 years and have no price, efficiency, or spending variances ... so what's going on?!" (Click the icon to view the absorption costing income statements for the three years.) Read the requirements. Requirement 1. What denominator level is PralineYum using to allocate fixed manufacturing costs to the candy? How is PralineYum treating any favorable or unfavorable production-volume variance at the end of the year? Explain your answer briefly. The denominator level used to allocate fixed manufacturing costs is units. Data table Data table Requirements 1. What denominator level is PralineYum using to allocate fixed manufacturing costs to the candy? How is PralineYum treating any favorable or unfavorable production-volume variance at the end of the year? Explain your answer briefly. 2. How did PralineYum's accountants arrive at the breakeven volume of 31,000 units? 3. Prepare a variable costing-based income statement for each year. Explain the variation in the variable costing operating income for each year based on contribution margin per unit and sales volume. 4. Reconcile the operating incomes under variable costing and absorption costing for each year, and use this information to explain to Derrick Tarver the positive operating income in 2020 and the drop in operating income in 2021