Bires Ronsard SA recently purchased a brewing plant from a bankrupt company. The brewery is in Montpazier,
Question:
a. Theoretical capacity: 600 barrels an hour for 24 hours a day × 365 days = 5256000 barrels.
b. Practical capacity: 500 barrels an hour for 20 hours a day × 350 days = 3500000 barrels.
c. Normal utilisation for 2007: 400 barrels an hour for 20 hours a day × 350 days = 2800000 barrels.
d. Master-budget utilisation for 2007 (separate rates calculated for each half-year):
• January to June 2007 budget: 320 barrels an hour for 20 hours a day × 175 days = 1120000 barrels
• July to December 2007 budget: 480 barrels an hour for 20 hours a day × 175 days = 1 680 000 barrels.
Variable standard manufacturing costs per barrel are €45 (variable direct materials, €32; variable manufacturing labour, €6; and variable manufacturing overhead, €7). The
Montpazier brewery 'sells' its output to the sales division of Bières Ronsard at a budgeted price of €68 per barrel.
Required
1. Calculate the budgeted fixed manufacturing overhead rate using each of the four denominator-level concepts for (a) beer produced in March 2007 and (b) beer produced in September 2007. Explain why any differences arise.
2. Explain why the theoretical capacity and practical capacity concepts are different.
3. Which denominator-level concept would the plant manager of the Montpazier brewery prefer when senior management of Bières Ronsard is judging plant manager performance during 2007? Explain.
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Related Book For
Management and Cost Accounting
ISBN: 978-1405888202
4th edition
Authors: Alnoor Bhimani, Charles T. Horngren, Srikant M. Datar, George Foster
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