Superior Lager has just purchased the Denver Brewery The brewery is two years old and user absorption costing till ets product to Superior Lager at 548 per barrel Peter Bryant Superior Lager's controller obtain the following information about Denver Brewery's capacity and budgeted for manufacturing costs for 2017 Requirement 1. Compute the budgeted fred manufacturing overhead rate per barrel for each of the denominator devel capachy concepts. Explain why they are different Begin by determing the formula to calculate the budgeted fred manufacturing overhead rate per barrel, then compute the rate for each of the denominator tevel capacity concepts (Abbreviations used Budg - budgeted, MOH manufacturing overhead. Round the rates to the recent) Budgeted feed Budgford MOH per period / Budy denominator level (barrel) - MOH rate per barrel Theoretical capacity 5 28, 100.000 4229.2005 664 Practical capacity 5 28 100.000 3.500.000 5 803 Normal capacity uzation 28.100.000 2.730.0005 1029 Master Budget capacity for each half year (a) January 2017 5 14.050.000 1.137.500 5 12.35 July-December 2017 5 14.050.000 1592.500 5 Explain why they are diferent The theoretical and practical capacity concepts emphasize supply factors while normal capacity utilization and master budgetization concepts emphasize demand factors The sa month rates for the master budget flization concept en diferent because of seasonal diferences in budgited production Requirement 2. Compute the Denver Brewery's operating income when the denominator-level capacity is (a) theoretical capacity (b) practical capacity, and (c) normal capachyutlization 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 cant) Per barrel Budgeted ford Budgeted Budgeted Denominator-level MOH rate variable total Ford MOH capacityconcept cost rate collocated Theoretical capacity $ G's 3045 $ 37 09's 17.254.000 Practical capacity 8.00 30.45 20.878,000 Normal capacity tization 1029 3045 4074 26754.000 Now compute the operating income for each capacity concept one at a time. Label the variances as favorable (F) or unfavorable (W) Enter a "for any pero balance accounts) perbane Theoretical capacity Reven Cost of goods sold Beginning inventory Variable manufacturing costs Flored manufacturing overhead cost allocated Cost of goods available for sale Deduct ending inventory Adjustment for variances Cost of goods sold 79.170.000 17.254.000 96.434,000 Other Operating income Requirements 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 Denver Brewery reported these production results: Beginning inventory in barrels, 1-1-2017 0 Production in barrels 2,600,000 Ending inventory in barrels, 12-31-2017 180,000 Actual variable manufacturing costs $ 79,170,000 Actual fixed manufacturing overhead costs $ 27,100,000 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 Denver Brewery's operating income when the denominator-level capacity is (a) theoretical capacity. (b) practical capacity, and (c) normal capacity utilization 500 Budgeted Fixed Days of Hours of Manufacturing Production Production Barrels per Denominator-Level Capacity Concept Overhead per Period per Period per Day Hour Theoretical capacity $ 28,100,000 356 22 540 Practical capacity $ 28,100,000 350 20 Normal capacity utilization $ 28,100,000 350 20 390 Master-budget capacity utilization for each half year: (a) January-June 2017 14,050,000 175 20 325 (b) July-December 2017 14,050,000 175 20 455 A A
