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: $800$ barrels an hour for $24$ hours a day

for $385$ 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 $2022$: $400$ berrels an hour for $20$ hours a day

for $350$ day $=2,800,000$

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.

$023,$ the brewery of Pictou Ale showed these results:

The brewery had actual costs of:

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$).(4)$