Exam 18: The Predetermined Overhead Rate and Capacity

When the predetermined overhead rate is based on the level of activity at capacity,an item called the Cost of Unused Capacity may appear be treated as a period expense on income statements prepared for internal management use.

(Appendix 2B) Mausser Woodworking Corporation produces fine cabinets. The company uses a job-order costing system in which its predetermined overhead rate is based on capacity. The capacity of the factory is determined by the capacity of its constraint, which is an automated jointer. Additional information is provided below for the most recent month: -The cost of unused capacity that would be reported as a period expense on the income statement prepared for internal management purposes would be closest to:

(Appendix 2B) The management of Plitt Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity. The company's controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 69,000 machine-hours. Capacity is 82,000 machine-hours and the actual level of activity for the year is assumed to be 72,400 machine-hours. All of the manufacturing overhead is fixed and both the estimated amount at the beginning of the year and the actual amount at the end of the year are assumed to be $4,130,340 per year. It is assumed that a number of jobs were worked on during the year, one of which was Job Q20L which required 470 machine-hours. -If the company bases its predetermined overhead rate on the estimated amount of the allocation base for the upcoming year,then the amount of manufacturing overhead charged to Job Q20L is closest to:

(Appendix 2B) Coble Woodworking Corporation produces fine cabinets. The company uses a job-order costing system in which its predetermined overhead rate is based on capacity. The capacity of the factory is determined by the capacity of its constraint, which is an automated shaper. Additional information is provided below for the most recent month: -The cost of unused capacity that would be reported as a period expense on the income statement prepared for internal management purposes would be closest to:

(Appendix 2B) The management of Plitt Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity. The company's controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 69,000 machine-hours. Capacity is 82,000 machine-hours and the actual level of activity for the year is assumed to be 72,400 machine-hours. All of the manufacturing overhead is fixed and both the estimated amount at the beginning of the year and the actual amount at the end of the year are assumed to be $4,130,340 per year. It is assumed that a number of jobs were worked on during the year, one of which was Job Q20L which required 470 machine-hours. -If the company bases its predetermined overhead rate on capacity,what would be the cost of unused capacity reported on the income statement prepared for internal management purposes?

When the fixed costs of capacity are spread over the estimated activity of the period rather than the level of activity at capacity,the units that are produced must shoulder the costs of unused capacity.

The management of Garn Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated activity for the coming year.The Corporation's controller has provided an example to illustrate how this new system would work.In this example,the allocation base is machine-hours and the estimated activity for the upcoming year is 69,000 machine-hours.Capacity is 85,000 machine-hours.All of the manufacturing overhead is fixed and is $4,105,500 per year within the range of 69,000 to 85,000 machine-hours.If the Corporation bases its predetermined overhead rate on capacity but the actual level of activity for the year turns out to be 69,700 machine-hours,the cost of unused capacity shown on the income statement prepared for internal management purposes would be closest to:

(Appendix 2B) Zackery Woodworking Corporation produces fine cabinets. The company uses a job-order costing system in which its predetermined overhead rate is based on capacity. The capacity of the factory is determined by the capacity of its constraint, which is an automated lathe. Additional information is provided below for the most recent month: -The manufacturing overhead applied is closest to:

(Appendix 2B) Dunnings Woodworking Corporation produces fine cabinets. The company uses a job-order costing system in which its predetermined overhead rate is based on capacity. The capacity of the factory is determined by the capacity of its constraint, which is an automated router. Additional information is provided below for the most recent month: -The manufacturing overhead applied is closest to:

(Appendix 2B) Zackery Woodworking Corporation produces fine cabinets. The company uses a job-order costing system in which its predetermined overhead rate is based on capacity. The capacity of the factory is determined by the capacity of its constraint, which is an automated lathe. Additional information is provided below for the most recent month: -If the company bases its predetermined overhead rate on capacity,then the predetermined overhead rate is closest to:

Dowty Woodworking Corporation produces fine cabinets.The company uses a job-order costing system in which its predetermined overhead rate is based on capacity.The capacity of the factory is determined by the capacity of its constraint,which is an automated lathe.Additional information is provided below for the most recent month: The manufacturing overhead applied is closest to:

(Appendix 2B) Dunnings Woodworking Corporation produces fine cabinets. The company uses a job-order costing system in which its predetermined overhead rate is based on capacity. The capacity of the factory is determined by the capacity of its constraint, which is an automated router. Additional information is provided below for the most recent month: -If the company bases its predetermined overhead rate on capacity,then the predetermined overhead rate is closest to:

(Appendix 2B) The management of Featheringham Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity. The company's controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 62,000 machine-hours. Capacity is 75,000 machine-hours and the actual level of activity for the year is assumed to be 59,000 machine-hours. All of the manufacturing overhead is fixed and both the estimated amount at the beginning of the year and the actual amount at the end of the year are assumed to be $2,836,500 per year. It is assumed that a number of jobs were worked on during the year, one of which was Job Z77W which required 410 machine-hours. -If the company bases its predetermined overhead rate on capacity,then the predetermined overhead rate is closest to:

(Appendix 2B) Coble Woodworking Corporation produces fine cabinets. The company uses a job-order costing system in which its predetermined overhead rate is based on capacity. The capacity of the factory is determined by the capacity of its constraint, which is an automated shaper. Additional information is provided below for the most recent month: -The predetermined overhead rate based on hours at capacity is closest to:

The management of Krach Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity.The company's controller has provided an example to illustrate how this new system would work.In this example,the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 10,000 machine-hours.Capacity is 12,000 machine-hours and the actual level of activity for the year is assumed to be 9,500 machine-hours.All of the manufacturing overhead is fixed and both the estimated amount at the beginning of the year and the actual amount at the end of the year are assumed to be $12,000 per year.For simplicity,it is assumed that this is the estimated manufacturing overhead for the year as well as the manufacturing overhead at capacity.It is further assumed that this is also the actual amount of manufacturing overhead for the year. If the company bases its predetermined overhead rate on capacity,what would be the cost of unused capacity reported on the income statement prepared for internal management purposes?

(Appendix 2B) Dunnings Woodworking Corporation produces fine cabinets. The company uses a job-order costing system in which its predetermined overhead rate is based on capacity. The capacity of the factory is determined by the capacity of its constraint, which is an automated router. Additional information is provided below for the most recent month: -If the company bases its predetermined overhead rate on capacity,what would be the cost of unused capacity reported on the income statement prepared for internal management purposes?

Knipple Woodworking Corporation produces fine cabinets.The company uses a job-order costing system in which its predetermined overhead rate is based on capacity.The capacity of the factory is determined by the capacity of its constraint,which is an automated bandsaw.Additional information is provided below for the most recent month: Required: Prepare an income statement following the Example in Appendix 2B in which any cost of unused capacity is directly recorded on the income statement as a period expense.

(Appendix 2B) The management of Plitt Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity. The company's controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 69,000 machine-hours. Capacity is 82,000 machine-hours and the actual level of activity for the year is assumed to be 72,400 machine-hours. All of the manufacturing overhead is fixed and both the estimated amount at the beginning of the year and the actual amount at the end of the year are assumed to be $4,130,340 per year. It is assumed that a number of jobs were worked on during the year, one of which was Job Q20L which required 470 machine-hours. -If the company bases its predetermined overhead rate on capacity,then the amount of manufacturing overhead charged to Job Q20L is closest to:

If the predetermined overhead rate on is based on the estimated level of activity for the current period,then products will be charged only for the capacity that they use and will not be charged for the capacity they don't use.

The management of Michaeli Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated amount of activity for the year.The company's controller has provided an example to illustrate how this new system would work. Required: Determine the cost of unused capacity for the year if the predetermined overhead rate is based on activity at capacity.