Question

Planet Light FirstPlanet Light First​(PLFPLF​),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,PLFPLFhas 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$2.20per bulb. Fixed manufacturing costs are$ 1 comma 160 comma 000$1,160,000per year. Variable and fixed selling and administrative expenses are$ 0.25$0.25per bulb sold and$ 200 comma 000$200,000​,respectively. Because its light bulbs are currently popular with environmentally conscious​ customers,PLFPLFcan sell the bulbs for$ 9.40$9.40

each.PLFPLFis deciding among various concepts of capacity for calculating the cost of each unit produced. Its choices are as​ follows:

THEORTICAL CAPACITY	800000
PRACTICAL CAPACITY	400000
NORMAL capacity	290000
master budget capacity	200000

Calculate the inventoriable cost per unit using each level of capacity to compute fixed manufacturing cost per unit.

Suppose PLFPLF actually produces 250 comma 000250,000 bulbs. Calculate the​ production-volume variance using each level of capacity to compute the fixed manufacturing overhead allocation rate.

Assume PLFPLF has no beginning inventory. If this​ year's actual sales are 200 comma 000200,000 ​bulbs, calculate operating income for PLFPLF using each type of capacity to compute fixed manufacturing cost per unit.

Answer 1

	THEORTICAL CAPACITY	800000
	PRACTICAL CAPACITY	400000
	NORMAL capacity	290000
	master budget capacity	200000
					All amount in $
	Actual Production			250000
1	THEORTICAL CAPACITY	800000
	Variable cost	250000x2.2		550000
	Fixed cost	1160000/800000x250000		362500
	Total Cost			912500
	Cost per unit	912500/250000		3.65
2	PRACTICAL CAPACITY	400000
	Variable cost	250000x2.2		550000
	Fixed cost	1160000/400000x250000		725000
	Total Cost			1275000
	Cost per unit	1275000/250000		5.10
3	NORMAL capacity	290000
	Variable cost	250000x2.2		550000
	Fixed cost	1160000/290000x250000		1000000
	Total Cost			1550000
	Cost per unit	912500/250000		6.20
4	master budget capacity	200000
	Variable cost	200000x2.2		440000
	Fixed cost	1160000/20000x200000		1160000
	Total Cost			1600000
	Cost per unit	912500/200000		8.00
			Selling price	Value
	Actual Sales	200000 units	9.4	1880000
1	As per THEORTICAL CAPACITY
	Manufcturing cost	200000x3.65		730000
	Variable selling expenses	200000x0.25		50000
	Fixedselling expenses			200000
	Total Cost of goods sold			980000
	Operating profit	1880000-980000		900000
2	As per PRACTICAL CAPACITY
	Manufcturing cost	200000x5.10		1020000
	Variable selling expenses	200000x0.25		50000
	Fixedselling expenses			200000
	Total Cost of goods sold			1270000
	Operating profit	1880000-1270000		610000
3	As per NORMAL capacity
	Manufcturing cost	200000x6.20		1240000
	Variable selling expenses	200000x0.25		50000
	Fixedselling expenses			200000
	Total Cost of goods sold			1490000
	Operating profit	1880000-1490000		390000
4	AS per master budget capacity
	Manufcturing cost	200000x8		1600000
	Variable selling expenses	200000x0.25		50000
	Fixedselling expenses			200000
	Total Cost of goods sold			1850000
	Operating profit	1880000-1850000		30000