Denominator-Level Capacity Concept Budgeted Fixed MOH per period Days of Production per period Hours of production per day Barrels per hour Theoretical capacity $28,000,000 360 24 540 Practical capacity $28,000,000 350 20 500 Normal capacity utilization $28,000,000 350 20 400 Master-Budget capacity for each half year: a) January – June 2012 b) July – December 2012
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Lucky Lager has just purchased the Austin Brewery. The brewery is two years old and uses absorption costing. It will “sell” its products to Lucky Lager at $45 per barrel. Paul Brandon, Lucky Lager’s controller, obtains the following information about Austin Brewery’s capacity and budgeted fixed
|
Denominator-Level Capacity Concept |
Budgeted Fixed MOH per period |
Days of Production per period |
Hours of production per day |
Barrels per hour |
|
Theoretical capacity |
$28,000,000 |
360 |
24 |
540 |
|
Practical capacity |
$28,000,000 |
350 |
20 |
500 |
|
Normal capacity utilization |
$28,000,000 |
350 |
20 |
400 |
|
Master-Budget capacity for each half year: a) January – June 2012 b) July – December 2012 |
$14,000,000 $14,000,000 |
175 175 |
20 20 |
320 480 |
Required:
- Compute the budgeted fixed MOH rate per barrel for each of the denominator-level capacity concepts. Explain why they are different.
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