Author Question: Withdrawals of assets from a business by the owners are considered to be expenses. Indicate ... (Read 219 times)

Hungry! · **on:** Jul 6, 2018

Withdrawals of assets from a business by the owners are considered to be expenses.
Indicate whether the statement is true or false

Question 2

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 manufacturing costs for 2014:

Required:
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 2014, 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.

Question 3

A transaction with more than one debit and/or more than one credit is called a compound entry.
Indicate whether the statement is true or false

chereeb · **Reply #1 on:** Jul 6, 2018

Answer to Question 1

F

Answer to Question 2

1.
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 3

T