Thunder Bolt, Inc., is a manufacturer of the very popular G36 motorcycles. The management at Thunder Bolt has recently adopted absorption costing and is debating which denominator-level concept to use. The G36 motorcycles sell for an average price of $8,100. Budgeted fixed manufacturing overhead costs for 2020 are estimated at $4,536,000. Thunder Bolt, Inc., uses subassembly operators that provide component parts. The following are the denominator-level options that management has been considering:

1.	Calculate the budgeted fixed manufacturing overhead cost rates under the four denominator-level concepts.
2.	What are the benefits to Thunder Bolt, Inc., of using either theoretical capacity or practical capacity?
3.	Under a cost-based pricing system, what are the negative aspects of a master-budget denominator level? What are the positive aspects?

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a.	Theoretical capacitybased on three shifts, completion of four motorcycles per shift, and a 360-day year3 4 360=4,320.
b.	Practical capacitytheoretical capacity adjusted for unavoidable interruptions, breakdowns, and so forth3 3 320=2,880.
c.	Normal capacity utilizationestimated at 2,160 units.
d.	Master-budget capacity utilizationthe strengthening stock market and the growing popularity of motorcycles have prompted the marketing department to issue an estimate for 2020 of 2,500 units.