Exam 17: The Predetermined Overhead Rate and Capacity

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,by how much was manufacturing overhead underapplied or overapplied?

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:

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:

The management of Wymer 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 50,000 machine-hours.In addition,capacity is 59,000 machine-hours and the actual level of activity for the year is 53,300 machine-hours.All of the manufacturing overhead is fixed and is $1,622,500 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.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 J44V.This job required 230 machine-hours. -If the company bases its predetermined overhead rate on capacity,the predetermined overhead rate is closest to:

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.

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.