FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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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 fixed
a. Theoretical capacity—based on three shifts, completion of five motorcycles per shift, and a 360-day year—3 * 5 * 360 = 5,400.
b. Practical capacity—theoretical capacity adjusted for unavoidable interruptions, breakdowns, and so forth—3 * 4 * 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 motorcycles have prompted the marketing department to issue an estimate for 2017 of 3,600 units.
Q.Under a cost-based pricing system, what are the negative aspects of a master-budget denominator level? What are the positive aspects?
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