In 2018, the Montpazier brewery of Bires Ronsard showed these results: The sales division of Bires Ronsard

In 2018, the Montpazier brewery of Bières Ronsard showed these results: 

The sales division of Bières Ronsard purchased 240,0000 barrels in 2018 at the € 68 per barrel rate. 

All manufacturing variances are written off to cost of goods sold in the period in which they are incurred. 

Required

1. Calculate the operating profit of the Montpazier brewery using the following: (a) theoretical capacity, (b) practical capacity and (c) normal utilisation denominator-level concepts. Explain any differences among (a), (b) and (c). 

2. What denominator-level concept would Bières Ronsard prefer for income tax reporting? Explain. 

3. Explain the ways in which the tax office might restrict the flexibility of a company like Bières Ronsard, which uses absorption costing, to reduce its reported taxable income.

Transcribed Image Text:

Unit data in barrels Opening stock, 1 January 2018 Production Closing stock, 31 December 2018 2 600 000 200 000 The Montpazier brewery had actual costs of: Cost data Variable manufacturing Fixed manufacturing overhead €120 380 000 €40 632 000