Simplex Company has the following estimated costs for next year: $\begin{array}{llcc} \text { Direct materials............................... } &\$15,000\\ \text {Direct labor..................................... } &\$55,000\\ \text { Sales commissions.......................... } &\$75,000\\ \text { Salary of production supervisor....... } &\$35,000\\ \text { Indirect materials........................... } &\$5,000\\ \text {Advertising expense........................ } &\$11,000\\ \text { Rent on factory equipment............} &\$16,000\\ \end{array}$ Simplex estimates that 10,000 direct labor and 16,000 machine-hours will be worked during the year.If overhead is applied on the basis of machine-hours,the overhead rate per hour will be:

A) $8.56 B) $7.63 C) $6.94 D) $3.50 A) $8.56 B) $7.63 C) $6.94 D) $3.50

The management of Mcneff 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. $\begin{array}{lrrr} &\text { Estimated}\\ &\text { at the}\\ &\text { Beginning}\\ &\text { of the Year}& \text { Capacity}& \text { Actual }\\ \text { Machine-hours ............. } & 81,000 & 87,000 & 81,400 \\ \text { Manufacturing overhead .... } & \$ 5,496,660 & \$ 5,496,660 & \$ 5,496,660 \end{array}$ If the company bases its predetermined overhead rate on capacity,by how much was manufacturing overhead underapplied or overapplied?

A) $27,144 Underapplied B) $353,808 Underapplied C) $27,144 Overapplied D) $353,808 Overapplied A) $27,144 Underapplied B) $353,808 Underapplied C) $27,144 Overapplied D) $353,808 Overapplied

Exam 1: Absorption Costing and Variable Costing

The management of Amacker 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.In this example,the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 37,000 machine-hours.In addition,capacity is 43,000 machine-hours and the actual activity for the year is 38,100 machine-hours.All of the manufacturing overhead is fixed and is $604,580 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 and the actual amount of manufacturing overhead for the year. Required: Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

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Question 1

Correct Answer:

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$\begin{array}{lll} \text { Calculation of the predetermined overhead rate: } &\\ \text { Estimated total manufacturing overhead at.} &\\ \text {capacity...............................................................}&\$4,579,500\\ \text { Total amount of the allocation base at capacity ...... } &\underline{604,580}&\text{MHs}\\ \text { Predetermined overhead rate...............................} &\underline{\$14.06}&\text{per MH}\\\end{array}$

$\begin{array}{llcc} \text {Calculation of overhead underapplied or overapplied: } &\\ \text { Actual manufacturing overhead cost incurred.................... } &\$604,580\\ \text { Manufacturing overhead applied to jobs: } &\\ \text {Predetermined overhead rate................................. } &\$14.06& \text {per MH }\\ \text {Actual hours.......................................................... } &\underline{83,100}& \text { MHs }\\ \text {Manufacturing overhead applied to jobs................. } &\underline{\$535,686}\\ \text { Underapplied (overapplied) manufacturing } &\\ \text { overhead............................................................... } &\underline{\$68,894}&\text{Underapplied}\\\end{array}$

The management of Crapser 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 58,000 machine-hours.In addition,capacity is 67,000 machine-hours and the actual level of activity for the year is 59,000 machine-hours.All of the manufacturing overhead is fixed and is $2,098,440 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,by how much was manufacturing overhead underapplied or overapplied?

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Question 2

Correct Answer:

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A

The management of Cius 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.In this example,the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 84,000 machine-hours.In addition,capacity is 91,000 machine-hours and the actual activity for the year is 82,200 machine-hours.All of the manufacturing overhead is fixed and is $5,962,320 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 and the actual amount of manufacturing overhead for the year. Required: a.Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity. b.Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

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Question 3

Correct Answer:

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a. $\begin{array}{lll} \text { Calculation of the predetermined overhead rate: } &\\ \text { Estimated total manufacturing overhead at.} &\\ \text {capacity...............................................................}&\$5,962,320\\ \text { Total amount of the allocation base at capacity ...... } &\underline{91,000}&\text{MHs}\\ \text { Predetermined overhead rate...............................} &\underline{\$65.52}&\text{per MH}\\\end{array}$

b.
$\begin{array}{llcc} \text {Calculation of overhead underapplied or overapplied: } &\\ \text { Actual manufacturing overhead cost incurred.................... } &\$5,962,320\\ \text { Manufacturing overhead applied to jobs: } &\\ \text {Predetermined overhead rate................................. } &\$65.52& \text {per MH }\\ \text {Actual hours.......................................................... } &\underline{82,200}& \text { MHs }\\ \text {Manufacturing overhead applied to jobs................. } &\underline{\$5,385,744}\\ \text { Underapplied (overapplied) manufacturing } &\\ \text { overhead............................................................... } &\underline{\$576,576}&\text{Underapplied}\\\end{array}$

Simplex Company has the following estimated costs for next year: Direct materials............................... \1 5,000 Direct labor..................................... \5 5,000 Sales commissions.......................... \7 5,000 Salary of production supervisor....... \3 5,000 Indirect materials........................... \5 ,000 Advertising expense........................ \1 1,000 Rent on factory equipment............ \1 6,000 Simplex estimates that 10,000 direct labor and 16,000 machine-hours will be worked during the year.If overhead is applied on the basis of machine-hours,the overhead rate per hour will be:

(Multiple Choice)

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Question 4

If the company bases its predetermined overhead rate on the estimated amount of the allocation base for the upcoming year the amount of manufacturing overhead charged to the Job J44V is closest to:

(Multiple Choice)

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Question 5

If the company bases its predetermined overhead rate on capacity,the amount of manufacturing overhead charged to the job J44V is closest to:

(Multiple Choice)

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Question 6

If the company bases its predetermined overhead rate on capacity,by how much was manufacturing overhead underapplied or overapplied?

(Multiple Choice)

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Question 7

The management of Bauza 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 12,000 machine-hours.In addition,capacity is 14,000 machine-hours and the actual level of activity for the year is 11,400 machine-hours.All of the manufacturing overhead is fixed and is $20,160 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,by how much was manufacturing overhead underapplied or overapplied?

(Multiple Choice)

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Question 8

The management of Bauza 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 12,000 machine-hours.In addition,capacity is 14,000 machine-hours and the actual level of activity for the year is 11,400 machine-hours.All of the manufacturing overhead is fixed and is $20,160 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,the predetermined overhead rate is closest to:

(Multiple Choice)

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Question 9

If the company bases its predetermined overhead rate on the estimated amount of the allocation base for the upcoming year,by how much was manufacturing overhead underapplied or overapplied?

(Multiple Choice)

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Question 10

The management of Rathburn 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.In this example,the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 43,000 machine-hours.In addition,capacity is 47,000 machine-hours and the actual activity for the year is 42,600 machine-hours.All of the manufacturing overhead is fixed and is $848,820 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 and the actual amount of manufacturing overhead for the year.Job F31I,which required 310 machine-hours,is one of the jobs worked on during the year. Required: a.Determine the predetermined overhead rate if the predetermined overhead rate is based on the estimated amount of the allocation base. b.Determine how much overhead would be applied to Job F31I if the predetermined overhead rate is based on estimated amount of the allocation base. c.Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the estimated amount of the allocation base. d.Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity. e.Determine how much overhead would be applied to Job F31I if the predetermined overhead rate is based on the amount of the allocation base at capacity. f.Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

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Question 11

If the predetermined overhead rate is based on the estimated total amount of the allocation base at capacity,it is more likely that overhead will be overapplied than underapplied.

(True/False)

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Question 12

The management of Mcneff 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. Estimated at the Beginning of the Year Capacity Actual Machine-hours ............. 81,000 87,000 81,400 Manufacturing overhead .... \ 5,496,660 \ 5,496,660 \ 5,496,660 If the company bases its predetermined overhead rate on capacity,by how much was manufacturing overhead underapplied or overapplied?

(Multiple Choice)

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Question 13

In order to improve the accuracy of unit costs,most companies recompute the predetermined overhead rate each month.

(True/False)

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Question 14

The management of Polcyn 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.In this example,the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 71,000 machine-hours.In addition,capacity is 86,000 machine-hours and the actual activity for the year is 64,100 machine-hours.All of the manufacturing overhead is fixed and is $4,579,500 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 and the actual amount of manufacturing overhead for the year. Required: a.Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the estimated amount of the allocation base. b.Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

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Question 15

The management of Hendren 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.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.In addition,capacity is 12,000 machine-hours and the actual activity for the year is 10,100 machine-hours.All of the manufacturing overhead is fixed and is $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 and the actual amount of manufacturing overhead for the year.Job A76W,which required 420 machine-hours,is one of the jobs worked on during the year. Required: a.Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity. b.Determine how much overhead would be applied to Job A76W if the predetermined overhead rate is based on the amount of the allocation base at capacity. c.Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

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Question 16

The management of Baggerly 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 81,000 machine-hours.In addition,capacity is 95,000 machine-hours and the actual level of activity for the year is 84,900 machine-hours.All of the manufacturing overhead is fixed and is $6,617,700 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,by how much was manufacturing overhead underapplied or overapplied?

(Multiple Choice)

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Question 17

The management of Haigler 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 64,000 machine-hours.In addition,capacity is 80,000 machine-hours and the actual level of activity for the year is 66,300 machine-hours.All of the manufacturing overhead is fixed and is $3,788,800 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 the estimated amount of the allocation base for the upcoming year,the predetermined overhead rate is closest to:

(Multiple Choice)

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Question 18

The management of Pundt 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 15,000 machine-hours.In addition,capacity is 19,000 machine-hours and the actual level of activity for the year is 15,100 machine-hours.All of the manufacturing overhead is fixed and is $45,600 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.A number of jobs were worked on during the year,one of which was Job K41P.This job required 140 machine-hours. -If the company bases its predetermined overhead rate on capacity,the predetermined overhead rate is closest to:

(Multiple Choice)

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Question 19

The management of Pundt 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 15,000 machine-hours.In addition,capacity is 19,000 machine-hours and the actual level of activity for the year is 15,100 machine-hours.All of the manufacturing overhead is fixed and is $45,600 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.A number of jobs were worked on during the year,one of which was Job K41P.This job required 140 machine-hours. -If the company bases its predetermined overhead rate on capacity,the amount of manufacturing overhead charged to the job K41P is closest to:

(Multiple Choice)

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Question 20

If the company bases its predetermined overhead rate on the estimated amount of the allocation base for the upcoming year the amount of manufacturing overhead charged to the Job J44V is closest to:

If the company bases its predetermined overhead rate on capacity,the amount of manufacturing overhead charged to the job J44V is closest to:

If the company bases its predetermined overhead rate on capacity,by how much was manufacturing overhead underapplied or overapplied?

If the company bases its predetermined overhead rate on the estimated amount of the allocation base for the upcoming year,by how much was manufacturing overhead underapplied or overapplied?

If the predetermined overhead rate is based on the estimated total amount of the allocation base at capacity,it is more likely that overhead will be overapplied than underapplied.

In order to improve the accuracy of unit costs,most companies recompute the predetermined overhead rate each month.

Statement of Cash Flows

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Cost of Quality

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Absorption Costing and Variable Costing

Abc Action Analysis

Use Activity-Based Costing Technique to Compute Product Costs for External Reports

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Compute and Interpret the Fixed Overhead Variances

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The Concept of Present Value

Income Taxes in Capital Budgeting Decisions

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