AJG Inc. is a manufacturer of the very popular G36 motorcycles. The management at AJG has recently
Question:
a. Theoretical capacity-based on two shifts, completion of four motorcycles per shift, and a 360-day year-2 × 4 × 360 $ 2,880.
b. Practical capacity-theoretical capacity adjusted for unavoidable interruptions, breakdowns, and so forth-2 × 3 × 320 $ 1,920.
c. Normal capacity utilization-estimated at 1,200 units.
d. Master-budget capacity utilization-the growing popularity of motorcycles have prompted the marketing department to issue an estimate for 2015 of 1,500 units.
Required
1. Calculate the budgeted fixed manufacturing overhead cost rates under the four denominator-level concepts.
2. What are the benefits to AJG Inc. of using either theoretical capacity or practical capacity?
3. Under a cost-based pricing system, what are the negative aspects of a master-budget denominator level? What are the positive aspects?
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Related Book For
Cost Accounting A Managerial Emphasis
ISBN: 978-0133138443
7th Canadian Edition
Authors: Srikant M. Datar, Madhav V. Rajan, Charles T. Horngren, Louis Beaubien, Chris Graham
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