Tolman Lager has just purchased the Boise Brewery. The brewery is two years old and uses absorption costing. It will "sell" its product to Tolman Lager at $48 per barrel. Peter Bryant, Tolman Lager's controller, obtains the following information about Boise 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 Budg. fixed MOH per period | Budg. denominator level (barrels) MOH rate per barrel Theoretical capacity $ 28,300,000 1 4,752,000 = $ 5.96 Practical capacity $ 28,300,000 / 3,504,600 = $ 8.08 Normal capacity utilization $ 28,300,000 / 2,761,200 = $ 10.25 Master-budget capacity for each half year: (a) JanuaryJune 2017 (b) JulyDecember 2017 $ 14,150,000 1,150,500 $ 12.30 II $ 14,150,000 , 1,610,700 = $ 8.79 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. 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 Boise 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 capacity concept per barrel cost rate cost rate costs allocated Theoretical capacity $ 5.96 $ 30.45 $ 36.41 $ 15,496,000 21,008,000 Practical capacity 8.08 30.45 38.53 Normal capacity utilization 10.25 30.45 40.70 26,650,000 Now compute the operating income for each capacity concept, one at a time. Label the variances as favorable (F) or unfavorable (U). (Enter a "0" for any zero balance accounts.) Theoretical capacity Revenues 116160000 Cost of goods sold Beginning inventory 0 Variable manufacturing costs 79170000 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 - X vill "sell" its product to Tolman Lager at $48 per barrel. Peter Bryant, Tolman Lager's controller, Data table Requirements Days of Hours of Production Production Barrels per Period per Day per Hour 360 24 550 354 20 495 Budgeted Fixed Manufacturing Denominator-Level Overhead per Capacity Concept Period Theoretical capacity $ 28,300,000 Practical capacity $ 28,300,000 Normal capacity utilization $ 28,300,000 Master-budget capacity utilization for each half year: (a) JanuaryJune 2017 $ 14,150,000 (b) JulyDecember 2017 $ 14,150,000 354 20 390 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 Boise 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 Boise Brewery's operating income when the denominator-level capacity is (a) theoretical capacity, (b) practical capacity, and (c) normal capacity utilization. 177 20 325 177 20 455 Print Done Print Done