Alternative denominator-level concepts. (25-30 minutes) Bires Ronsard, SA, recently purchased a brewing plant from a bankrupt company.

Alternative denominator-level concepts. (25-30 minutes) Biéres Ronsard, SA, recently purchased a brewing plant from a bankrupt company. The brewery is in Montpazier, France. It was constructed only two years ago. The plant has budgeted fixed manufacturing overhead of FFr 42 million (FFr 3.5 million each month) in 2000. Alain Cassandre, the controller of the brewery, must decide on the denominator-level concept to use in its absorption costing system for 2000. The options available to him are

a. Theoretical capacity: 600 barrels an hour for 24 hours a day X 365 days = 5,256,000 barrels

b. Practical capacity: 500 barrels an hour for 20 hours a day X 350 days

= 3,500,000 barrels

c. Normal utilisation for 2000: 400 barrels an hour for 20 hours a day X 350 days = 2,800,000 barrels

d. Master-budget utilisation for 2000 (separate rates calculated for each half-year):

® January to June 2000 budget—320 barrels an hour for 20 hours a day X 175 days = 1,120,000 barrels

@ July to December 2000 budget—480 barrels an hour for 20 hours a day X 175 days = 1,680,000 barrels Variable standard manufacturing costs per barrel are FFr 45 (variable direct materials, FFr 32; variable manufacturing labour, FFr 6; and variable manufacturing overhead, FFr 7). The Montpazier brewery ‘sells’ its output to the sales division of Biéres Ronsard at a budgeted price of FFr 68 per barrel. jutt4 REQUIRED 1. Calculate the budgeted fixed manufacturing overhead rate using each of the four denominator-level concepts for

(a) beer produced in March 2000 and

(b) beer produced in September 2000. Explain why any differences arise.
2. Explain why the theoretical capacity and practical capacity concepts are different.
3. Which denominator-level concept would the plant manager of the Montpazier brewery prefer when senior management of Bieres Ronsard is judging plant manager performance during 2000? Explain.