Sweetdelight uses standard costing to produce a particularly popular type of candy. Sweetdelight's President, Bob Tarver was unhappy after reviewing the income statements for the first three years of business. He said, "I was told by our accountantsand in fact, I have memorizedthat our breakeven volume is 31,000 units. I was happy that we reached that sales goal in each of our first two 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 20% 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 three years and have no price, efficiency, or spending variances ... so what's going on?!" Absorption Costing 2016 2017 2018 Sales (units) 31,000 31,000 37,200 Revenues $ 2,356,000 $ 2.356,000 $ 2.827,200 Cost of goods sold Beginning inventory 0 0 427,800 Production 2,139,000 2,566,800 2.129.000 Available for sale 2,129,000 2,566,800 2,566,800 Deduct ending inventory 0 (427,800) 0 0 0 Adjustment for production-volume variance (341.000) Cost of goods sold 2,139,000 1.798,000 2.566.800 Gross margin 217,000 558,000 260.400 Selling and administrative expenses (all fixed) 217.000 217,000 217.000 Operating income 341,000 43.400 Beginning inventory 0 0 6.200 Production (units) 31,000 37,200 31,000 Sales (units) 31,000 31,000 37,200 Ending inventory 0 6,200 0 Variable manufacturing cost per unit 14 14 Fixed manufacturing overhead costs $ 1,705,000 $ 1,705,000 $ 1,705,000 Fixed manuf. costs allocated per unit produced $ 55$ 55 1. What denominator level is Sweetdelight using to allocate fixed manufacturing costs to the candy? How is Sweetdelight disposing of any favorable or unfavorable production-volume variance at the end of the year? Explain your answer Brietly. 2. How did Sweetdelight'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 casting 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 Bob Tarver the positive operating income in 2017 and the drop in operating income in 2018