Alcal Partners uses absorption costing based on standard costs and reports the following data for 2021:

Theoretical capacity	360 000	units
Practical capacity	300 000	units
Normal capacity	240 000	units
Selling price	R30	per unit
Beginning inventory	25 000	units
Production	260 000	units
Sales volume	280 000	units
Variable budgeted manufacturing cost	R3	per unit
Total budgeted fixed manufacturing costs	R3 600 000
Total budgeted operating costs (all fixed)	R1 000 000

The production volume variance is written off to cost of goods sold. For each choice of denominator level, the budgeted production cost per unit is also the cost per unit of beginning inventory.

Required:

3.1       Calculate the production volume variance in 2021 when the denominator level is:

            a.         theoretical capacity

            b.         practical capacity

            c.         normal capacity

3.2       Prepare absorption costing income statement of Alcal Partners using theoretical capacity, practical capacity, and normal capacity as the denominator levels.

3.3       Explain why the operating income under normal capacity utilization lower than the other two scenarios.

3.4       Reconcile the difference in operating income based on the theoretical capacity and practical capacity

Answer rating: 100% (QA)

3 1 a The oret ical capacity Production volume variance The oret ical capacity Actual production x Standard unit cost 360 000 260 000 x R 3 100 000 x ... View the full answer