Fortune Lager has just purchased the Austin

Brewery. The brewery is two years old and uses absorption costing. It will "sell" its product to

Fortune Lager at $48 per barrel. Peter Bryant,

Fortune Lager's controller, obtains the following information about Austin

Brewery's capacity and budgeted fixed manufacturing costs for 2014:

	Budgeted Fixed	Days of	Hours of
Denominator-Level	Manufacturing	Production	Production	Barrels
Capacity Concept	Overhead per Period	per Period	per Day	per Hour
Theoretical capacity	$28,100,000	356	22	545
Practical capacity	$28,100,000	354	20	510
Normal capacity utilization	$28,100,000	354	20	395
Master-budget capacity for each half year
(a) January - June 2014	$14,050,000	177	20	320
(b) July - December 2014	$14,050,000	177	20	470
REQUIREMENTS

1.

Compute the budgeted fixed manufacturing overhead rate per barrel for each of the denominator-level capacity concepts. Explain why they are different.

2.

In 2014, the Austin Brewery reported these production results:

Beginning inventory in barrels, 1-1-2014	0
Production in barrels	2,590,000
Ending inventory in barrels, 12-31-2014	230,000
Actual variable manufacturing costs	$78,218,000
Actual fixed manufacturing overhead costs	$27,400,000

There are no variable cost variances. Fixed manufacturing overhead cost variances are written off to cost of goods sold in the period in which they occur. Compute the Austin

Brewery's operating income when the denominator-level capacity is (a) theoretical capacity, (b) practical capacity, and (c) normal capacity utilization.