The Management of Plitt Corporation Would Like to Investigate the Possibility

Multiple Choice

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 60,000 machine-hours. Capacity is 80,000 machine-hours and the actual level of activity for the year is assumed to be 65,000 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 $662,400 per year. It is assumed that a number of jobs were worked on during the year, one of which was Job Q20L which required 310 machine-hours. If the company bases its predetermined overhead rate on the estimated amount of the allocation base for the upcoming year, then the predetermined overhead rate is closest to:

A) $10.19 per machine-hour
B) $7.64 per machine-hour
C) $11.04 per machine-hour
D) $8.28 per machine-hour