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Bergan Brewery uses the latest in modern brewing technology to produce a prizewinning beer. In both 2011 and 2012, Bergan produced and sold 100,000 cases
Bergan Brewery uses the latest in modern brewing technology to produce a prizewinning beer. In both 2011 and 2012, Bergan produced and sold 100,000 cases of beer and had no raw materials, work in process, or finished goods inventory at the beginning or end of either year. At the end of 2011, the company installed machines to perform some of the repetitive tasks previously performed with direct labor. At the beginning of 2012, Bergan's bookkeeper estimated that net income would increase from $530,000 in 2011 to $706,000 in 2012: | |
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However, when actual overhead was used to calculate net income at the end of the year, net income decreased from $530,000 in 2011 to $435,000 in 2012: | |
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Using the cost driver and predetermined overhead rate you suggested in B, and assuming that 5,000 machine hours will be incurred, recalculate Bergan's estimated net income for 2012.
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