. 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

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Assume PLF has no beginning inventory. If this year’s actual sales are 225,000 bulbs, calculate operating income for PLF using each type of capacity to compute fixed manufacturing cost per unit.

. 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 Total cost of procuring or producing a product or the cost that an individual or business owner undertakes for the manufacturing of goods.

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