Absorption costing and production-volume variance—alternative capacity bases. planet light first (plf), a producer ofenergy-efficient light bulbs, expects that demand will increase markedly over the next decade. due to the high fixed costsinvolved in the business, plf has decided to evaluate its financial performance using absorption costing income. theproduction-volume variance is written off to cost of goods sold. the variable cost of production is $240 per bulb. fixedmanufacturing costs are $1,170,000 per year. variable and fixed selling and administrative expenses are $0.20 per bulbsold and $220,000, respectively. 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 eachunit produced. its choices are as follows: theoretical capacity mm hubspractical capaciy 5mm hill): normal capaciy zoom hulls (average expected output for the next three years}master budget capacity hubs expected production this year1. calculate the inventoriable cost per unit using each level of capacity to compute fixed manufacturing cost per unit. 2suppose plf actually produces 300,000 bulbs. calculate the production-volume variance using each level of capacity tocompute the fixed manufacturing overhead allocation rate. 3. assume plf has no beginning inventory. if this year’s actualsales are 225,000 bulbs, calculate operating income for plf using each type of capacity to compute fixed manufacturingcost per unit.

Zachary company produces commercial gardening equipment. since production is highly automated, the company allocates its overhead costs to product lines using activity-based costing. the costs and cost drivers associated with the four overhead activity cost pools follow: activities unit level batch level product level facility level cost $ 64,800 $ 27,730 $ 15,000 $ 154,000 cost driver 2,400 labor hrs. 47 setups percentage of use 11,000 units production of 780 sets of cutting shears, one of the company’s 20 products, took 240 labor hours and 7 setups and consumed 15 percent of the product-sustaining activities. required: (a) had the company used labor hours as a company wide allocation base, how much overhead would it have allocated to the cutting shears? (b) how much overhead is allocated to the cutting shears using activity-based costing? (c) compute the overhead cost per unit for cutting shears first using activity-based costing and then using direct labor hours for allocation if 780 units are produced. if direct product costs are $150 and the product is priced at 30 percent above cost for what price would the product sell under each allocation system? (d) assuming that activity-based costing provides a more accurate estimate of cost, indicate whether the cutting shears would be over- or underpriced if direct labor hours are used as an allocation base. explain how over-or undercosting can affect vaulker's profitability. (e) comment on the validity of using the allocated facility-level cost in the pricing decision. should other costs be considered in a cost- plus pricing decision? if so, which ones? what costs would you include if you were trying to decide whether to accept a special order?