Production volume variance when denominator level is theoretical capacity.

Step 1: Understanding Absorption Costing and Production Volume Variance Absorption costing refers to a costing system that allocates both variable manufacturing costs and fixed costs to determine the cost of goods sold. Production volume variance is a part of fixed overhead cost that is allocated to ending inventory. Step 2: Computing Production Volume Variance when Denominator Level is Theoretical Capacity To compute the production volume variance when the denominator level is theoretical capacity, follow these steps: 1. Determine the production volume variance when the denominator level is theoretical capacity. Step 3: Computing Production Volume Variance when Denominator Level is Practical Capacity To compute the production volume variance when the denominator level is practical capacity, follow these steps: 1. Determine the production volume variance when the denominator level is practical capacity. Step 4: Computing Production Volume Variance when Denominator Level is Normal Capacity To compute the production volume variance when the denominator level is normal capacity, follow these steps: 1. Determine the production volume variance when the denominator level is normal capacity. Step 5: Preparing an Absorption Costing-based Income Statement To prepare an absorption costing-based income statement using theoretical capacity, practical capacity, and normal capacity utilization, follow these steps: 1. Determine the absorption costing-based income statement using theoretical capacity, practical capacity, and normal capacity utilization. Step 6: Explaining the Reason for Lower Operating Income under Normal Capacity To explain the reason why operating income under normal capacity is lower than the other two scenarios, follow these steps: 1. Explain the reason for lower operating income under normal capacity. Step 7: Reconciling the Operating Income based on Theoretical and Practical Capacity To reconcile the operating income based on theoretical and practical capacity, follow these steps: 1. Compute the reconciliation of the operating income based on theoretical and practical capacity.