The owner of MASKS Company needs your help in determining the denominator for the fixed manufacturing cost to calculate the product costs. His machines can produce 25,000 units per year, but only if nothing goes wrong and they always produce at the maximum level . If the owner gives his company some slack and considers the necessary maintenance, he can produce 22,000 units every year. When he looks a few years ahead, the average number of products he expects to sell yearly is 20,000 units. If he takes a closer look at the year 2019 and takes specific (market) conditions into consideration, he estimates sales of 21,000 units.

MASKS Company has the following budgeted in formation for year 2019 concerning product MASKS 1

Production: 19,000 units

Fixed manufacturing costs: P800,000

Variable manufacturing costs per unit: P3

Variable Selling and Admin costs per unit: P0.25

Selling price per unit: P45

Questions:

1. What is the theoretical capacity, the practical capacity, the normal capacity, and the master budget capacity of MASKS Company?
2. Which capacity would you suggest computing the product costs of MASKS 1? Is this relevant for absorption costing cost of the variable costing cost, why?
3. Compute the product cost of MASKS 1 according to absorption costing according to variable costing.
4. Compute for the absorption costing profit and the variable costing profit.