Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
16th Edition
ISBN: 9780134475585
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Chapter 9, Problem 9.37P
Alternative denominator-level capacity concepts, effect on operating income. Castle Lager has just purchased the Jacksonville Brewery. The brewery is two years old and uses absorption costing. It will “sell” its product to Castle Lager at $47 per barrel. Peter Bryant, Castle Lager’s controller, obtains the following information about Jacksonville Brewery’s capacity and budgeted fixed
- 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 Jacksonville Brewery reported these production results:
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 Jacksonville 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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Lucky Lager has just purchased the Austin Brewery. The brewery is two years old and uses absorption costing. It will “sell” its products to Lucky Lager at $45 per barrel. Paul Brandon, Lucky Lager’s controller, obtains the following information about Austin Brewery’s capacity and budgeted fixed manufacturing costs for 2012:
Denominator-Level Capacity Concept
Budgeted Fixed MOH per period
Days of Production per period
Hours of production per day
Barrels per hour
Theoretical capacity
$28,000,000
360
24
540
Practical capacity
$28,000,000
350
20
500
Normal capacity utilization
$28,000,000
350
20
400
Master-Budget capacity for each half year:
a) January – June 2012
b) July – December 2012
$14,000,000
$14,000,000
175
175
20
20
320
480
Required:
Compute the budgeted fixed MOH rate per barrel for each of the denominator-level capacity concepts. Explain why they are different.
Lucky Lager has just purchased the Austin Brewery. The brewery is two years old and uses absorption costing. It will “sell” its products to Lucky Lager at $45 per barrel. Paul Brandon, Lucky Lager’s controller, obtains the following information about Austin Brewery’s capacity and budgeted fixed manufacturing costs for 2012:
Budgeted Fixed MOH per period
Days of Production per period
Hours of production per day
Barrels per hour
Theoretical capacity
$28,000,000
360
24
540
Practical capacity
$28,000,000
350
20
500
Normal capacity utilization
$28,000,000
350
20
400
Master-Budget capacity for each half year:
a) January – June 2012
b) July – December 2012
$14,000,000
$14,000,000
175
175
20
20
320
480
In 2012, the Austin Brewery reported these production results:
Beginning inventory in barrels, 1 January 2012: 0
Production in barrels: 2,600,000…
Tioga Company manufactures sophisticated lenses and mirrors used in large optical telescopes. The company is now preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of overhead that should be allocated to the individual product lines from the following information.
Lenses
Mirrors
Units produced
28
28
Material moves per product line
24
14
Direct-labor hours per unit
180
180
The total budgeted material-handling cost is $105,840.Required:1. Under a costing system that allocates overhead on the basis of direct-labor hours, the material-handling costs allocated to one lens would be what amount?2. Under a costing system that allocates overhead on the basis of direct-labor hours, the material-handling costs allocated to one mirror would be what amount?3. Under activity-based costing (ABC), the material-handling costs allocated to one lens would be what amount? The cost driver…
Chapter 9 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Ch. 9 - Differences in operating income between variable...Ch. 9 - Why is the term direct costing a misnomer?Ch. 9 - Do companies in either the service sector or the...Ch. 9 - Explain the main conceptual issue under variable...Ch. 9 - Companies that make no variable-cost/fixed-cost...Ch. 9 - The main trouble with variable costing is that it...Ch. 9 - Give an example of how, under absorption costing,...Ch. 9 - What are the factors that affect the breakeven...Ch. 9 - Critics of absorption costing have increasingly...Ch. 9 - What are two ways of reducing the negative aspects...
Ch. 9 - Prob. 9.11QCh. 9 - Describe the downward demand spiral and its...Ch. 9 - Will the financial statements of a company always...Ch. 9 - Prob. 9.14QCh. 9 - The difference between practical capacity and...Ch. 9 - In comparing the absorption and variable cost...Ch. 9 - Queen Sales, Inc. has just completed its first...Ch. 9 - King Tooling has produced and sold the following...Ch. 9 - The following information relates to Drexler Inc.s...Ch. 9 - Prob. 9.20MCQCh. 9 - Variable and absorption costing, explaining...Ch. 9 - Throughput costing (continuation of 9-21). The...Ch. 9 - Variable and absorption costing, explaining...Ch. 9 - Throughput costing (continuation of 9-23). The...Ch. 9 - Variable versus absorption costing. The Tomlinson...Ch. 9 - Absorption and variable costing. (CMA) Miami,...Ch. 9 - Absorption versus variable costing. Horace Company...Ch. 9 - Candyland uses standard costing to produce a...Ch. 9 - Capacity management, denominator-level capacity...Ch. 9 - Denominator-level problem. Thunder Bolt Inc., is a...Ch. 9 - Variable and absorption costing and breakeven...Ch. 9 - Variable costing versus absorption costing. The...Ch. 9 - Throughput Costing (continuation of 9-32) 1....Ch. 9 - Variable costing and absorption costing, the Z-Var...Ch. 9 - Comparison of variable costing and absorption...Ch. 9 - Effects of differing production levels on...Ch. 9 - Alternative denominator-level capacity concepts,...Ch. 9 - Motivational considerations in denominator-level...Ch. 9 - Denominator-level choices, changes in inventory...Ch. 9 - Variable and absorption costing and breakeven...Ch. 9 - Downward demand spiral. Market.com is about to...Ch. 9 - Absorption costing and production-volume...Ch. 9 - Operating income effects of denominator-level...Ch. 9 - Variable and absorption costing, actual costing....Ch. 9 - Prob. 9.45PCh. 9 - Cost allocation, responsibility accounting, ethics...Ch. 9 - Absorption, variable, and throughput costing....Ch. 9 - Costing methods and variances, comprehensive. Rob...
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