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Tolman Lager has just purchased the Denver Brewery. The brewery is 2 years old and uses absorption costing. It will sell its product to
Tolman Lager has just purchased the Denver Brewery. The brewery is 2 years old and uses absorption costing. It will "sell" its product to Tolman Lager at $42 per barrel. Peter Bryant, Tolman Lager's controller, obtains the following information about Denver Brewery's capacity and budgeted fixed manufacturing costs for 2020: (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.) Budg. fixed MOH per period Budg. denominator level (barrels) Budgeted fixed = MOH rate per barrel Theoretical capacity 28,400,000 = 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 2020, the Denver Brewery reported these production results: A 12 Beginning inventory in barrels, 1-1-2020 13 Production in barrels 14 Ending inventory in barrels, 12-31-2020 15 Actual variable manufacturing costs 16 Actual fixed manufacturing overhead costs B 2,620,000 200,000 $ 79,517,000 $ 27,300,000 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. Data Table A B Budgeted Fixed Manufacturing C E Hours of Days of Production Production Barrels per 1 Denominator-Level Capacity Concept Overhead per Period per Period per Day Hour 2 Theoretical capacity 3 Practical capacity 4 Normal capacity utilization Master-budget capacity utilization for 5 each half year: 6 (a) January-June 2020 7 (b) July-December 2020 28,400,000 350 22 545 $ 28,400,000 354 20 505 GA 69 28,400,000 354 20 410 14,200,000 177 20 330 14,200,000 177 20 490
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