Please find theoretical capacity, and practical capacity operating incomes.
Honeygold Lager has just purchased the Chicago Brewery. The brewery is two years old and uses absorption costing. It will "sell" its product to Honeygold Lager at $42 per barrel. Peter Bryant, Honeygold Lager's controller, obtains the following information about Chicago Brewery's capacity and budgeted fixed manufacturing costs for 2017: (Click the icon to view the information.) Read the requirements. Requirement 1. Compute the budgeted fixed manufacturing overhead rate per barrel for each the denominator-level capacity concepts. Explain why they are different. Begin by determing the formula to calculate the budgeted fixed manufacturing overhead rate per barrel, then compute the rate for each of the denominator-level capacity concepts. (Abbreviations used: Budg. = budgeted, MOH = manufacturing overhead. Round the rates to the nearest cent.) Budgeted fixed = MOH rate per barrel Budg, fixed MOH per period 1 Budg. denominator level (barrels) 28,100,000/ 4,380,200 = $ 6.42 28,100,000/ 3,500,000 = $ 8.03 28,100,000 2,800,000 = $ 10.04 Theoretical capacity S Practical capacity S S Normal capacity utilization Master-budget capacity for each half year. (a) JanuaryJune 2017 (b) July-December 2017 $ 14,050,000 1.085,000 = S 12.95 14,050,000 1,715,000 = $ 8.19 Explain why they are different. The theoretical and practical capacity concepts emphasize supply factors, while normal capacity utilization and master-budget utilization concepts emphasize demand factors. The six-month rates for the master-budget utilization concept are different because of seasonal differences in budgeted production. Requirement 2. Compute the Chicago Brewery's operating income when the denominator-level capacity is (a) theoretical capacity. (b) practical capacity, and (c) normal capacity utilization. Requirement 2. Compute the Chicago Brewery's operating income when the denominator-level capacity is (a) theoretical capacity, (b) practical capacity, and (c) normal capacity utilization. Begin by completing the following table to help you compute the operating income for each denominator-level capacity concept. (Round the rates to the nearest cent.) Per barrel Budgeted fixed Budgeted Budgeted Denominator-level MOH rate variable mfg total mfg Fixed MOH per barrel cost rate cost rate costs allocated capacity concept Theoretical capacity Practical capacity 6.42 $ 30.10 $ 36.52 $ 16,627,800 20,797,700 8.03 30.10 38.13 Normal capacity utilization 10.04 30.10 40.14 26,003,600 Now compute the operating income for each capacity concept, one at a time. Label the variances as favorable (F) or unfavorable (U). (Enter a "O" for any zero balance accounts.) Theoretical capacity Revenues Cost of goods sold Beginning inventory Variable manufacturing costs HUI Fixed manufacturing overhead cost allocated Theoretical capacity Revenues Cost of goods sold Beginning inventory Variable manufacturing costs Fixed manufacturing overhead cost allocated Cost of goods available for sale Deduct ending inventory Adjustment for variances Cost of goods sold Gross margin Other costs Operating income Requirements Pata Table Budgeted Fixed Manufacturing Overhead per Period $ 28,100,000 Days of Hours of Production Production Barrels per per Period per Day Hour 362 22 550 28,100,000 350 20 500 1. Compute the budgeted fixed manufacturing overhead rate per barrel for each of the denominator-level capacity concepts. Explain why they are different. 2. In 2017, the Chicago Brewery reported these production results: Beginning inventory in barrels, 1-1-2017 0 Production in barrels 2,590,000 Ending inventory in barrels, 12-31-2017 180,000 Actual variable manufacturing costs $ 77,959,000 Actual fixed manufacturing overhead costs $ 26,800,000 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 Chicago Brewery's operating income when the denominator-level capacity is (a) theoretical capacity, (b) practical capacity, and (c) normal capacity utilization. Denominator-Level Capacity Concept Theoretical capacity Practical capacity Normal capacity utilization Master-budget capacity utilization for each half year: (a) JanuaryJune 2017 (b) JulyDecember 2017 28,100,000 350 20 400 $ 14,050,000 175 20 310 14,050,000 175 20 490 Print Done Print Done
