INVENTORY COSTING & CAPACITY ANALYSIS Overhead Allocation with Capacity Comiderations Free work cells Arewer cells Jeanie Smith is the plant controller for Castle Lager Brewery, a privately-held brewery in New England. Castle is considering raising capital in the upcoming year so leanie is taking a serious look at how her accounting practices might affect the reported income for the company. Castle uses normal job costing, Le overhead is allocated into production using a budgeted allocation rate per barrel. Al overhead variances are written off to COGS at year end. Jeanie wants to examine how using different denominator-levels in the budgeted allocation rate FOR FIXED COSTS might affect the income for the company. OPTION 1: VARIABLE COSTING 10 11 12 13 OPTION 2: ABSORPTION COSTING, THEORETICAL CAPACITY OPTION 3: ABSORPTION COSTING, PRACTICAL CAPACITY OPTION 4: ABSORPTION COSTING, NORMAL CAPACITY OPTION 5/ABSORPTION COSTING, BUDGETED VOLUME Under Variable Costing, only variable manufacturing costs are treated as product costs and are capitalired into inventory (Le. Initially reconded as inventory assets and later expensed as COGS). Any fixed manufacturing costs incurred are treated as period costs and are immediately expensed as COGS Since no fixed cost is allocated into inventory, under Variable Costing there is no fued overheid allocation rate Under Absorption Costing, both variable and fixed manufacturing costs are treated as product costs and are capitalized into inventory (e. Initially recorded as inventory assets and later expensed as COGS). Theoretical Capacity represents the volume that a factory could hypothetically produce at full efficiency, 100% utilation, and ideal conditions Under Absorption Costing, both variable and feed manufacturing costs are treated as product costs and are capitalized into inventory (e. Initially recorded as inventory assets and later expensed as COGS "Practical Capacity represents a factory's theoretical capacity adjusted for (reduced for) unavoidable stoppages, scheduled maintenance, and holidays and weekends Under Absorption Costing, both variable and fixed manufacturing costs are treated as product costs and are capitalized into inventory (Le. Initially recorded as inventory assets and later expensed as COGS) "Normal Capachy" represents the average demand level over several years, considering season, rydical and trend information Under Absorption Costing, both variable and feed manufacturing costs are treated as product costs and are capitalized into inventory Bentially recorded as inventory assets and later expensed as COGS) "Budgeted Volume" represents the current year's expected demand level The Brewery is able to produce 0.5 bamels per hour at maximum efficiency. Due to unavoidable operating interuptions, production actually averages 0.475 barels per working hour. There are three-hour shifts each day. Due to union and legal restrictions, the plant actually operates three 7-hour shifts per day and works 28 days per 30-day average month (12 months per year). Based on the curent budget Castle estimates that it will only be able to s I only 2,500 barrels this year but that demand in the future will normalize around 2,800 ba 14 Additional information 15 Budgeted fed overhead for the year 16 Actual production for the year (hameb) 17 Actual sales for the year (bar) 18 Actual fixed overhead for the year 19 $ 27,900 2,671 2,460 $ 26,700 20 Answer cells must remain in the same location so do not insert/delete columns or s in the file. Unless otherwise indicated, numen anwers must include a formula or reference so do not hard enter the answe CHA +