Chapter 9, Problem 9.43P

Operating income effects of denominator-level choice and disposal of production-volume variance (continuation of 9-42).

1. 1. If PLF sells all 300,000 bulbs produced, what would be the effect on operating income of using each type of capacity as a basis for calculating manufacturing cost per unit?

Required

1. 2. Compare the results of operating income at different capacity levels when 225,000 bulbs are sold and when 300,000 bulbs are sold. What conclusion can you draw from the comparison?
2. 3. Using the original data (that is, 300,000 units produced and 225,000 units sold) if PLF had used the proration approach to allocate the production-volume variance, what would operating income have been under each level of capacity? (Assume that there is no ending work in process.)