Reference no: EM133056639

Question - Cleary Corporation is a manufacturer of computer accessories. It uses absorption costing based on standard costs and reports the following data for the year.

Theoretical capacity 262,500 units

Practical capacity 243,750 units

Normal capacity utilization 210,000 units

Selling price $37 per unit

Beginning inventory 25,000 units

Production 215,000 units

Sales volume 235,000 units

Variable budgeted manufacturing cost $3 per unit

Total budgeted fixed manufacturing costs $2,730,000

Total budgeted operating (non-mfg.) costs (all fixed) $280,000

There are no rate or efficiency variances. Actual operating costs equal budgeted operating costs. The? production-volume variance is written off to COGS. For each choice of denominator? level, the budgeted production cost per unit is also the cost per unit of beginning inventory.

Required -

1. What is the production-volume variance for the year when the denominator level is (a) theoretical capacity, (b) practical capacity, and (c) normal capacity utilization?

2. Prepare absorption costing-based statements of comprehensive income for Cleary Corporation using theoretical capacity, practical capacity, and normal capacity utilization as the denominator levels.

3. Why is the operating income under normal capacity utilization lower than the other two scenarios?

4. Reconcile the difference in operating income based on theoretical capacity and practical capacity with the difference in fixed manufacturing overhead included in inventory.