Zing Lager has just purchased the Chicago Brewery. The brewery is 2 years old and uses absorption costing. It will “sell” its product to Zing Lager at $44 per barrel. Peter Bryant, Zing Lager’s controller, obtains the following information about Chicago Brewery’s capacity and budgeted fixed manufacturing costs for 2020:

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 2020, the Chicago 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 Chicago 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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Home Insert A 7 8 Page Layout 1 2 3 4 Theoretical capacity 5 Practical capacity 6 Normal capacity utilization Denominator-Level Capacity Concept Master-budget capacity utilization for each half year: (a) January-June 2020 9 (b) July-December 2020 Formulas B Budgeted Fixed Manufacturing Overhead per Period $28,300,000 $28,300,000 $28,300,000 Data $14,150,000 $14,150,000 Review Days of Production per Period 360 352 352 176 176 View D Hours of Production per Day 24 20 20 20 20 E Barrels per Hour 530 500 395 310 480