Knuckles Is Trying to Determine a Denominator Level for the Company's

Essay

Knuckles is trying to determine a denominator level for the company's budgeted production that will accurately portray the fixed-MOH cost per unit. The level should provide a solid gross margin and operating income. The company wants to set an achievable denominator so employees are not discouraged, but that will also motivate the employees to work harder to reach the goal. Knuckles has come up with three fixed-MOH capacity options with fixed-MOH expected to be $240,000 next year. Instructions
a.Calculate the budgeted fixed MOH rate of each level. (Round to the nearest cent.)
b.Which level will generate the highest estimated gross margin per unit?
c.Which level will generate the highest operating income in total? Explain your answer.
d.Which level will best achieve Knuckles' goal of improving employee motivation? Why?
e.Which level represents the most accurate measurement of the fixed-MOH cost per unit? Why?