Answer to Question 1F
Answer to Question 21.
Budgeted Fixed
Budgeted Fixed Days of Hours of Budgeted Manufacturing
Denominator-Level Capacity Concept Manuf. Overhead per Period Production per Period Production per Day Barrels
per Hour Denominator Level (Barrels) Overhead Rate
per Barrel
(1) (2) (3) (4) (5) = (2) (3) (4)
(6) = (1) (5)
Theoretical capacity 27,900,000 358 22 545 4,292,420 6.50
Practical capacity 27,900,000 348 20 510 3,549,600 7.86
Normal capacity utilization 27,900,000 348 20 410 2,853,600 9.78
Master-budget utilization
(a) JanuaryJune 2014 13,950,000 174 20 315 1,096,200 12.73
(b) JulyDecember 2014 13,950,000 174 20 505 1,757,400 7.94
The differences arise for several reasons:
a. The theoretical and practical capacity concepts emphasize supply factors and are consequently higher, while normal capacity utilization and master-budget utilization emphasize demand factors.
b. The two separate six-month rates for the master-budget utilization concept differ because of seasonal differences in budgeted production.
2. Using column (6) from above,
Per Barrel
Denominator-Level
Capacity Concept Budgeted
Fixed Mfg. Overhead
Rate per Barrel
(6) Budgeted Variable Mfg. Cost Rate
(7) Budgeted Total Mfg
Cost Rate
(
=
(6) + (7) Fixed Mfg.
Overhead
Costs Allocated
(9) =
2,670,000 (6)
Fixed
Mfg. Overhead Variance
(10) =
26,700,000 (9)
Theoretical capacity 6.50 30.20a 36.70 17,355,000 9,345,000 U
Practical capacity 7.86 30.20 38.06 20,986,200 5,713,800 U
Normal capacity utilization 9.78 30.20 39.98 26,112,600 587,400 U
a 80,634,000 2,670,000 barrels
Absorption-Costing Income Statement
Theoretical
Capacity Practical Capacity Normal
Capacity Utilization
Revenues (2,460,000 bbls. 47 per bbl.)
115,620,000 115,620,000 115,620,000
Cost of goods sold
Beginning inventory 0 0 0
Variable mfg. costs 80,634,000 80,634,000 80,634,000
Fixed mfg. overhead costs allocated
(2,670,000 units 6.50; 7.86; 9.78 per unit) 17,355,000 20,986,200 26,112,600
Cost of goods available for sale 97,989,000 101,620,200 106,746,600
Deduct ending inventory
(210,000 units 36.70; 38.06; 39.98 per unit) (7,707,000) (7,992,600) (8,395,800)
Adjustment for variances (add: all unfavorable) 9,345,000 U 5,713,800 U 587,400U
Cost of goods sold 99,627,000 99,341,400 98,938,200
Gross margin 15,993,000 16,278,600 16,681,800
Other costs 0 0 0
Operating income 15,993,000 16,278,600 16,681,800
Answer to Question 3T