Question : 21) A company should use the same denominator level capacity : 1212181

21) A company should use the same denominator level capacity for all the budgets and other purposes so as to facilitate comparability and avoid misrepresentation.

22) Match each of the following items with one or more of the denominator-level capacity concepts by putting the appropriate letter(s) by each item:

a.Theoretical capacity

b.Practical capacity

c.Normal capacity utilization

d.Master-budget capacity utilization

1.Reduces theoretical capacity by considering unavoidable operating interruptions

2.Producing at full efficiency all the time

3.Measures capacity levels in terms of demand

4.Level of capacity utilization that satisfies average customer demand over a period

5.Does not allow for plant maintenance

6.Engineering and human resource factors are important when estimating capacity

7.Level of capacity utilization that managers expect for the current budget period

8.Ideal goal of capacity utilization

9.Takes into account seasonal, cyclical, and trend factors

10.Measures capacity levels in terms of what a plant can supply

23) Soul Socket Inc. manufactures socket wrenches.

•For next month, the vice president of production plans on producing 4,450 wrenches per day.

•The company can produce as many as 5,000 wrenches per day, but is more likely to produce 4,500 per day.

•The demand for wrenches for the next three years is expected to average 4,250 wrenches per day.

•Fixed manufacturing costs per month total $374,000.

•The company works 22 days a month.

•Fixed manufacturing overhead is charged on a per-wrench basis.

Required:

a.What is the theoretical fixed manufacturing overhead rate per wrench for the next month?

b.What is the practical fixed manufacturing overhead rate per wrench for the next month?

c.What is the normal fixed manufacturing overhead rate per wrench for the next month?

d.What is the master-budget fixed manufacturing overhead rate per wrench for the next month?

Objective 9.6

1) Which of the following is true of theoretical capacity?

A) It will be less than the real capacity available to a company.

B) It provides the best perspective of actual long-run costs.

C) It results in the lowest cost estimate of the four capacity options when used for product costing.

D) It replicates the cost of capacity in a competitor’s cost structure.

2) The use of theoretical capacity results in an unrealistically low fixed manufacturing cost per unit because it is based on ________.

A) real available capacity

B) an unattainable level of capacity

C) normal capacity utilization

D) normal costing

3) Budgeted fixed manufacturing costs of a product using practical capacity ________.

A) represents the cost per unit of supplying capacity

B) can result in setting selling prices that are not competitive

C) includes the cost of unused capacity

D) should be used to evaluate a marketing manager’s performance in the current year

4) Which of the following is true of normal capacity utilization?

A) It will be less than the real capacity available to a company.

B) It can result in setting selling prices that are not competitive.

C) It results in the lowest cost estimate of the four capacity options when used for product costing.

D) It represents the maximum units of production intended for current capacity.

5) Which of the following is true of master-budget capacity utilization?

A) It hides the amount of unused capacity.

B) It represents the maximum units of production intended for current capacity.

C) It provides the best cost estimate for benchmarking purposes.

D) It is an average that provides no meaningful feedback to a firm’s marketing manager for a particular year.