Deck 16: the Predetermined Overhead Rate and Capacity

Question 1

(Appendix 4B)The management of Aamot 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 43,000 machine-hours.In addition,capacity is 47,000 machine-hours and the actual level of activity for the year is 42,100 machine-hours.All of the manufacturing overhead is fixed and is $828,610 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:

A)$17.63
B)$19.27
C)$19.14
D)$19.68

Answer 1

A
Explanation: Predetermined overhead rate = Estimated total manufacturing overhead at capacity ÷ Estimated total amount of the allocation base at capacity = $828,610 ÷ 47,000 machine-hours = $17.63 per machine-hour

Question 2

(Appendix 4B)The management of Richbourg 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 63,000 machine-hours.In addition,capacity is 70,000 machine-hours and the actual level of activity for the year is 66,200 machine-hours.All of the manufacturing overhead is fixed and is $2,866,500 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. 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?

A)$145,600 Underapplied
B)$145,600 Overapplied
C)$155,610 Overapplied
D)$155,610 Underapplied

Answer 2

B
Explanation: Predetermined overhead rate = Estimated total manufacturing overhead ÷ Estimated total amount of the allocation base = $2,866,500 ÷ 63,000 machine-hours = $45.50 per machine-hour

Question 3

(Appendix 4B)The management of Aamot 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 43,000 machine-hours.In addition,capacity is 47,000 machine-hours and the actual level of activity for the year is 42,100 machine-hours.All of the manufacturing overhead is fixed and is $828,610 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:

A)$19.68
B)$19.27
C)$19.14
D)$17.63

Answer 3

B
Explanation: Predetermined overhead rate = Estimated total manufacturing overhead ÷ Estimated total amount of the allocation base = $828,610 ÷ 43,000 machine-hours = $19.27 per machine-hour

Question 4

(Appendix 4B)The management of Aamot 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 43,000 machine-hours.In addition,capacity is 47,000 machine-hours and the actual level of activity for the year is 42,100 machine-hours.All of the manufacturing overhead is fixed and is $828,610 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?

A)$17,343 Overapplied
B)$86,387 Underapplied
C)$86,387 Overapplied
D)$17,343 Underapplied

Question 5

(Appendix 4B)The management of Benedict 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 29,000 machine-hours.In addition,capacity is 36,000 machine-hours and the actual level of activity for the year is 26,600 machine-hours.All of the manufacturing overhead is fixed and is $334,080 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 B04D.This job required 150 machine-hours. If the company bases its predetermined overhead rate on capacity,the amount of manufacturing overhead charged to the job B04D is closest to:

A)$1,566.00
B)$1,551.46
C)$1,883.91
D)$1,392.00

Question 6

(Appendix 4B)The management of Cordona 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 27,000 machine-hours.In addition,capacity is 33,000 machine-hours and the actual level of activity for the year is 27,900 machine-hours.All of the manufacturing overhead is fixed and is $231,660 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 I86N.This job required 370 machine-hours. If the company bases its predetermined overhead rate on capacity,the predetermined overhead rate is closest to:

A)$8.30
B)$7.02
C)$8.74
D)$8.58

Question 7

(Appendix 4B)If the predetermined overhead rate on is based on the level of activity at capacity,then products will be charged only for the capacity that they use and will not be charged for the capacity they don't use.

Question 8

(Appendix 4B)The management of Benedict 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 29,000 machine-hours.In addition,capacity is 36,000 machine-hours and the actual level of activity for the year is 26,600 machine-hours.All of the manufacturing overhead is fixed and is $334,080 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 B04D.This job required 150 machine-hours. If the company bases its predetermined overhead rate on capacity,by how much was manufacturing overhead underapplied or overapplied?

A)$87,232 Underapplied
B)$87,232 Overapplied
C)$27,648 Overapplied
D)$27,648 Underapplied

Question 9

The management of Chaloux Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity.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. If the Corporation bases its predetermined overhead rate on capacity,by how much was manufacturing overhead underapplied or overapplied?

A)$9,792 Overapplied
B)$1,344 Overapplied
C)$9,792 Underapplied
D)$1,344 Underapplied

Question 10

(Appendix 4B)The management of Benedict 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 29,000 machine-hours.In addition,capacity is 36,000 machine-hours and the actual level of activity for the year is 26,600 machine-hours.All of the manufacturing overhead is fixed and is $334,080 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 B04D.This job required 150 machine-hours. 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 B04D is closest to:

A)$1,392.00
B)$1,551.46
C)$1,728.00
D)$1,883.91

Question 11

(Appendix 4B)When the predetermined overhead rate is based on the level of activity at capacity,underapplied manufacturing overhead may be called the Cost of Unused Capacity and treated as a period expense.

Question 12

(Appendix 4B)The management of Wray 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 68,000 machine-hours.In addition,capacity is 79,000 machine-hours and the actual level of activity for the year is 63,500 machine-hours.All of the manufacturing overhead is fixed and is $3,384,360 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:

A)$53.30
B)$49.77
C)$42.84
D)$47.27

Question 13

(Appendix 4B)The management of Benedict 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 29,000 machine-hours.In addition,capacity is 36,000 machine-hours and the actual level of activity for the year is 26,600 machine-hours.All of the manufacturing overhead is fixed and is $334,080 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 B04D.This job required 150 machine-hours. 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?

A)$87,232 Underapplied
B)$27,648 Underapplied
C)$27,648 Overapplied
D)$87,232 Overapplied

Question 14

(Appendix 4B)If predetermined overhead rates are based on budgeted activity and overhead includes significant fixed costs,then the unit product costs will be stable regardless of the budgeted level of activity for the period.

Question 15

(Appendix 4B)The management of Benedict 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 29,000 machine-hours.In addition,capacity is 36,000 machine-hours and the actual level of activity for the year is 26,600 machine-hours.All of the manufacturing overhead is fixed and is $334,080 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 B04D.This job required 150 machine-hours. 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:

A)$11.52
B)$12.56
C)$9.28
D)$10.34

Question 16

(Appendix 4B)The management of Aamot 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 43,000 machine-hours.In addition,capacity is 47,000 machine-hours and the actual level of activity for the year is 42,100 machine-hours.All of the manufacturing overhead is fixed and is $828,610 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?

A)$17,343 Overapplied
B)$17,343 Underapplied
C)$86,387 Overapplied
D)$86,387 Underapplied

Question 17

(Appendix 4B)The management of Wray 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 68,000 machine-hours.In addition,capacity is 79,000 machine-hours and the actual level of activity for the year is 63,500 machine-hours.All of the manufacturing overhead is fixed and is $3,384,360 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?

A)$664,020 Underapplied
B)$223,965 Overapplied
C)$664,020 Overapplied
D)$223,965 Underapplied

Question 18

(Appendix 4B)The management of Digges Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity.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 amount of the allocation base for the upcoming year is 51,000 machine-hours.In addition,capacity is 63,000 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 $1,702,890 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 Corporation bases its predetermined overhead rate on capacity,by how much was manufacturing overhead underapplied or overapplied?

A)$76,797 Overapplied
B)$262,191 Overapplied
C)$262,191 Underapplied
D)$76,797 Underapplied

Question 19

(Appendix 4B)The management of Richbourg 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 63,000 machine-hours.In addition,capacity is 70,000 machine-hours and the actual level of activity for the year is 66,200 machine-hours.All of the manufacturing overhead is fixed and is $2,866,500 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. If the company bases its predetermined overhead rate on capacity,by how much was manufacturing overhead underapplied or overapplied?

A)$145,600 Overapplied
B)$155,610 Underapplied
C)$145,600 Underapplied
D)$155,610 Overapplied

Question 20

(Appendix 4B)The management of Benedict 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 29,000 machine-hours.In addition,capacity is 36,000 machine-hours and the actual level of activity for the year is 26,600 machine-hours.All of the manufacturing overhead is fixed and is $334,080 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 B04D.This job required 150 machine-hours. If the company bases its predetermined overhead rate on capacity,the predetermined overhead rate is closest to:

A)$9.28
B)$12.56
C)$11.52
D)$10.34

Question 21

(Appendix 4B)The management of Shastri 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 69,000 machine-hours.In addition,capacity is 76,000 machine-hours and the actual activity for the year is 71,600 machine-hours.All of the manufacturing overhead is fixed and is $3,461,040 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 Z67J,which required 330 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 Z67J 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 Z67J 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.

Question 22

(Appendix 4B)The management of Roger 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 49,000 machine-hours.In addition,capacity is 60,000 machine-hours and the actual activity for the year is 47,900 machine-hours.All of the manufacturing overhead is fixed and is $1,587,600 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 and the actual amount of manufacturing overhead for the year.Job T43G,which required 130 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 T43G 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.

Question 23

(Appendix 4B)The management of Lewinski 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 62,000 machine-hours.In addition,capacity is 68,000 machine-hours and the actual activity for the year is 59,200 machine-hours.All of the manufacturing overhead is fixed and is $2,656,080 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.

Question 24

(Appendix 4B)The management of Del 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 44,000 machine-hours and the actual activity for the year is 40,100 machine-hours.All of the manufacturing overhead is fixed and is $634,920 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.

Question 25

(Appendix 4B)The management of Cordona 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 27,000 machine-hours.In addition,capacity is 33,000 machine-hours and the actual level of activity for the year is 27,900 machine-hours.All of the manufacturing overhead is fixed and is $231,660 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 I86N.This job required 370 machine-hours. If the company bases its predetermined overhead rate on capacity,the amount of manufacturing overhead charged to job I86N is closest to:

A)$3,072.19
B)$3,296.70
C)$2,597.40
D)$3,234.50

Question 26

(Appendix 4B)The management of Hannan 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 12,000 machine-hours.In addition,capacity is 15,000 machine-hours and the actual activity for the year is 12,100 machine-hours.All of the manufacturing overhead is fixed and is $21,600 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 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.

Question 27

(Appendix 4B)The management of Cordona 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 27,000 machine-hours.In addition,capacity is 33,000 machine-hours and the actual level of activity for the year is 27,900 machine-hours.All of the manufacturing overhead is fixed and is $231,660 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 I86N.This job required 370 machine-hours. If the company bases its predetermined overhead rate on capacity,by how much was manufacturing overhead underapplied or overapplied?

A)$35,802 Underapplied
B)$7,722 Underapplied
C)$35,802 Overapplied
D)$7,722 Overapplied

Question 28

(Appendix 4B)The management of Westrope 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 76,000 machine-hours.In addition,capacity is 86,000 machine-hours and the actual activity for the year is 71,000 machine-hours.All of the manufacturing overhead is fixed and is $4,771,280 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 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 estimated amount of the allocation base.
c.Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity.
d.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.