. Planet Light First (PLF), a producer of energy-efficient light bulbs, expects unat demand will increase markedly over the next decade. Due to the high fixed costs involved in the business, PLF has 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 $2.40 per bulb. Fixed manufacturing costs are $1,170,000 per year. Variable and fixed selling and administrative expenses are $0.20 per bulb sold and $220,000, respec- tively. 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: Theoretical capacity Practical capacity Normal capacity Master-budget capacity 900,000 bulbs 520,000 bulbs 260,000 bulbs (average expected output for the next three years) 225,000 bulbs expected production this year

. Planet Light First (PLF), a producer of energy-efficient light bulbs, expects unat demand will increase markedly over the next decade. Due to the high fixed costs involved in the business, PLF has 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 $2.40 per bulb. Fixed manufacturing costs are $1,170,000 per year. Variable and fixed selling and administrative expenses are $0.20 per bulb sold and $220,000, respec- tively. 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: Theoretical capacity Practical capacity Normal capacity Master-budget capacity 900,000 bulbs 520,000 bulbs 260,000 bulbs (average expected output for the next three years) 225,000 bulbs expected production this year

Name: Suppose PLF actually produces 300,000 bulbs. Calculate the production-
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Description: Suppose PLF actually produces 300,000 bulbs. Calculate the production-volume variance using each level of capacity to compute the fixed manufacturing overhead allocation rate. . Planet LightFirst (PLF), a producer of energy-efficient light bulbs, exp

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Concept explainers

Variance Analysis

In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.

Standard Costing

The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.

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Question

Suppose PLF actually produces 300,000 bulbs. Calculate the production-volume variance using each level of capacity to compute the fixed manufacturing overhead allocation rate.

. Planet Light
First (PLF), a producer of energy-efficient light bulbs, expects unat demand will increase markedly over the
next decade. Due to the high fixed costs involved in the business, PLF has 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 $2.40 per bulb. Fixed manufacturing costs are $1,170,000 per
year. Variable and fixed selling and administrative expenses are $0.20 per bulb sold and $220,000, respec-
tively. 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:
Theoretical capacity
Practical capacity
Normal capacity
Master-budget capacity
900,000 bulbs
520,000 bulbs
260,000 bulbs (average expected output for the next three years)
225,000 bulbs expected production this year

Definition Definition Indirect costs incurred while producing goods or services. Overhead costs cannot be directly attributed to products or services. Overhead includes indirect material cost, indirect labor cost, rent, utilities expenses, and depreciation. Since these costs directly affect the profitability of a company, managing overhead becomes an important task for management.

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