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

Production $2,600,000$

Inventory, December $31,2023,200,000$

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 $2023$ 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 $2023$ and $(4)$

$($b$)$ beer produced in September $2023.(4)$

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$).(4)$