Yates Corporation is a manufacturer of computer accessories. It uses absorption costing based on standard costs and reports the following data for 2018:

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 in 2018 when the denominator level is

(a) Theoretical capacity,
(b) Practical capacity,

(c) Normal capacity utilization?

2. Prepare absorption costing-based statements of comprehensive income for Yates 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.

Transcribed Image Text:

1 Theoretical capacity 2 Practical capacity 3 Normal capacity utilization 4 Selling price 5 Beginning inventory_ 6 Production 7 Sales volume 8 Variable budgeted manufacturing cost 9 Total budgeted fixed manufacturing costs 10 Total budgeted operating (non-manuf.) costs (all fixed) $ 400,000 144,000 units 120,000 units 96,000 units 30 per unit 10,000 units 104,000 units 112,000 units 2$ $1,440,000| 3 per unit