7.20
Alternative denominator-level concepts.
(25–30 min)
1
Denominator- level concept Budgeted fixed manufacturing overhead per period Budgeted denominator level Budgeted fixed manufacturing overhead cost rate Theoretical capacity Practical capacity Normal utilisation
Master-budget utilisation a) Jan–June 2011 b) July–Dec 2011
€42,000,000 42,000,000 42,000,000 21,000,000 21,000,000 5,256,000 3,500,000 2,800,000 1,120,000 1,680,000
€7.99 12.00 15.00 18.75 12.50 The differences arise for several reasons
a
The theoretical and practical capacity concepts emphasise supply factors while normal utilisation and master-budget utilisation emphasise demand factors.
b
The two separate six-month rates for the master-budget utilisation concept differ because of seasonal differences in budgeted production.
2
• Theoretical capacity – based on the production of output at maximum efficiency for 100% of the time.
• Practical capacity – reduces theoretical capacity for unavoidable operating interruptions such as scheduled maintenance time, shutdowns for holidays and other days and soon. For each of the three determinants of capacity at
Montpazier, practical capacity is less than theoretical capacity
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