Lucky Larger Just purchase the cleveland Brewery is 2 years old and uses absortion costing .It will sell its product to Lucky Lager at $ 43 per barrel. Peter Bryant Lucky controller obtains the followeng information about Cleveland Brewey capacity and bugeted fixed manufacturing costs for 2020.

Requirements

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

2. In

2020,

the

Cleveland

Brewery reported these productionresults:

	A	B
12	Beginning inventory in barrels, 1-1-2020	0
13	Production in barrels	2,620,000
14	Ending inventory in barrels, 12-31-2020	190,000
15	Actual variable manufacturing costs	$79,517,000
16	Actual fixed manufacturing overhead costs	$27,200,000

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

Cleveland

Brewery's operating income when thedenominator-level capacity is(a) theoreticalcapacity, (b) practicalcapacity, and(c) normal capacity utilization

Data table

	A	B	C	D	E
1	Denominator-Level Capacity Concept	Budgeted Fixed Manufacturing Overhead per Period	Days of Production per Period	Hours of Production per Day	Barrels per Hour
2	Theoretical capacity	$28,000,000	358	22	545
3	Practical capacity	$28,000,000	354	20	520
4	Normal capacity utilization	$28,000,000	354	20	410
5	Master-budget capacity utilization for each half year:
6	(a) JanuaryJune 2020	$14,000,000	177	20	325
7	(b) JulyDecember 2020	$14,000,000	177	20	495