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Tolman Lager has just purchased the Austin Brewery. The brewery is two years old and uses absorption costing. It will sell its product to Tolman
Tolman Lager has just purchased the Austin Brewery. The brewery is two years old and uses absorption costing. It will "sell" its product to Tolman Lager at $43 per barrel. Peter Bryant, Tolman Lager's controller, obtains the following information about Austin 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 of 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 - Data Table Denominator-Level Capacity Concept Barrels per Hour Budgeted Fixed Days of Hours of Manufacturing Production Production Overhead per Period per Period per Day $ 28,200,000 362 24 $ 28,200,000 340 20 $ 28,200,000 340 20 535 Theoretical capacity Practical capacity Normal capacity utilization Master-budget capacity utilization for each half year: 520 395 $ 14,100,000 170 20 320 (a) JanuaryJune 2017 (b) July-December 2017 $ 14,100,000 170 20 470 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 Austin 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 $ 77,829,500 Actual fixed manufacturing overhead costs $ 27,400,000 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 Austin Brewery's operating income when the denominator-level capacity is (a) theoretical capacity, (b) practical capacity, and (c) normal capacity utilization
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