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\mathrm{.}167$ million each month$)$ in $2023.$ Sheila Husky, the controller of the brewery, must decide on the denominator level concept to use in its absorption costing system for $2023.$ 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 $2023($separate rates computed for each half$-$year$)$:

a$.$ January to June $2023$ budget$-320$ barrels an hour for $20$ hours a day for $175$ days $=1,120,000$

b$.$ July to December $2023$ budget$-480$ barrels an hour for $20$ hours a day for $175$ days $=1,680,000$

Variable standard manufacturing costs per barrel are $$51\mathrm{.}40($variable direct materials, $$38\mathrm{.}40$; variable manufacturing labour, $$6\mathrm{.}00$; and variable manufacturing overhead, $$7\mathrm{.}00).$ The brewery "sells" its output to the sales division of Pictou Ale at a budgeted price of $$82\mathrm{.}00$ per barrel.

In $2023,$ the brewery of Pictou Ale showed these results:

Number of Barrels:

Inventory, January $1,2023,0$

Production $2,600,000$

Inventory, December $31,2023200,000$

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 $2023$ at the $$82$ per barrel rate. All manufacturing variances are written off to COGS in the period in which they are incurred.