Fifth edition Alnoor Bhimani Charles T. Horngren Srikant M. Datar Madhav V. Rajan Farah Ahamed
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| Denominator- level concept Variable manufacturing cost* Budgeted fixed manufacturing overhead cost rate Total manufacturing costs Theoretical capacity Practical capacity Normal capacity €46.30 46.30 46.30 €7.99 12.00 15.00 €54.29 58.30 61.30 * €120,380,000 ÷ 2,600,000 = €46.30 per barrel The output-level overhead variance for each denominator-level concept is a Theoretical capacity €40,632,000 − (€7.99 × 2,600,000) €40,632,000 − €20,774,000 = €19,858,000 U b Practical capacity €40,632,000 − (€12.00 × 2,600,000) €40,632,000 − €31,200,000 = €9,432,000 U c Normal utilisation €40,632,000 − (€15.00 × 2,600,000) €40,632,000 − €39,000,000 = €1,632,000 U Illustration of operating profit differences Practical − Theoretical €13,848,000 − €13,046,000 = €802,000 Normal − Practical €14,448,000 − €13,848,000 = €600,000 Normal − Theoretical €14,448,000 − €13,046,000 = €1,402,000 The difference in operating profit across the three denominator-level concepts is due solely to differences in fixed manufacturing overhead included in the closing stock of 200,000 barrels Theoretical capacity 200,000 × €7.99 = €1,598,000 } €802,000 difference Practical capacity 200,000 × €12.00 = €2,400,000 } €600,000 difference Normal capacity 200,000 × €15.00 = €3,000,000 2 Given the data in this question, the theoretical capacity concept reports the lowest operating profit and thus (other things being equal, the lowest tax bill for 2005. Bières Ronsard benefits by having deductions as early as possible. The theoretical capacity denominator-level concept maximises the deductions for manufacturing costs. 3 The tax office may restrict the flexibility of a company in several ways. a Restrict the denominator-level concept choice. Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 5 th Edition, Instructor’s Manual © Pearson Education Limited 2012 b Restrict the cost line items that can be expensed rather than inventoried. c Restrict the ability of a company to use shorter write-off periods or more accelerated write-off periods for stock-related costs. Download 1.72 Mb. Share with your friends:
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