PART 1

Pictou Ale recently purchased a brewing plant from a bankrupt company. It was constructed only two years ago. The plant has budgeted fixed manufacturing overhead of $50 million per year ($4.167 million each month) in 2022. Sheila Husky, the controller of the brewery, must decide on the denominator level concept to use in its absorption costing system for 2022. The options available to her are:

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

Practical capacity: 500 barrels an hour for 20 hours a day for 350 days=3,500,000

Normal capacity utilization for 2022: 400 barrels an hour for 20 hours a day for 350 days=2,800,000

Master-budget capacity utilization for 2022 (separate rates computed for each half-year):

January to June 2022 budget320 barrels an hour for 20 hours a day for 175 days=1,120,000

July to December 2022 budget480 barrels an hour for 20 hours a day for 175 days=1,680,000

Variable standard manufacturing costs per barrel are $51.40 (variable direct materials, $38.40; variable manufacturing labour, $6.00; and variable manufacturing overhead, $7.00). The brewery sells its output to the sales division of Pictou Ale at a budgeted price of $82.00 per barrel.

In 2022, the brewery of Pictou Ale showed these results:

Number of Barrels:
Inventory, January 1, 2022	0
Production	2,600,000
Inventory, December 31, 2022	200,000

The brewery had actual costs of:

Variable Manufacturing	$ 144,456000
Fixed Manufacturing Overhead	48,758,400

The sales division of Pictou Ale purchased 2,400,000 barrels in 2022 at the $82 per barrel rate. All manufacturing variances are written off to COGS in the period in which they are incurred.

Required

Compute the budgeted fixed manufacturing overhead rate using each of the four denominator-level concepts for

(a) beer produced in March 2022 and (4)

(b) beer produced in September 2022. (4)

Explain why any differences arise. (4)

Compute the operating income of the brewery using the following (remember to include any Production Volume Variance as an expense):

(a) theoretical capacity, (5)

(b) practical capacity, and (5)

(c) normal capacity. (4)

Explain any differences between (a), (b), and (c). (4)

SOLVE IN WRITING PLEASE