Denominator-level problem. Thunder Bolt, Inc., is a manufacturer of the very popular G36 motorcycles. The management at Thunder Bolt has recently adopted absorption costing and is debating which denominatorlevel concept

Denominator-level problem. Thunder Bolt, Inc., is a manufacturer of the very popular G36 motorcycles. The management at Thunder Bolt has recently adopted absorption costing and is debating which denominatorlevel concept to use. The G36 motorcycles sell for an average price of $8,200. Budgeted xed manufacturing overhead costs for 2017 are estimated at $6,480,000. Thunder Bolt, Inc., uses subassembly operators that provide component parts. The following are the denominator-level options that management has been considering: Transcribed Image Text: a. Theoretical capacity-based on three shifts, completion of five motorcycles per shift, and a 360-day
year-3 x 5 x 360 = 5,400.
b. Practical capacity–theoretical capacity adjusted for unavoidable interruptions, breakdowns, and so
forth-3 x 4 x 320 = 3,840.
c. Normal capacity utilization-estimated at 3,240 units.
d. Master-budget capacity utilization-the strengthening stock market and the growing popularity of mo-
torcycles have prompted the marketing department to issue an estimate for 2017 of 3,600 units.
1. Calculate the budgeted fixed manufacturing overhead costrates under the four denominator-level concepts.
are the benefits to Thunder Bolt, Inc., of using either theoretical capacity or practical capacity?
3. Under a cost-based pricing system, what are the negative aspects of a master-budget denominator
level? are the positive aspects?
Required

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