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

Accepted Answer

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

Accepted Answer

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
 11eaa0c8_9702_ae0f_9cb2_1fac4d936f8d_TB2487_00

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

Accepted Answer

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

Accepted Answer

The predetermined overhead rate based on estimated machine-hours is $828,610 / 43,000 = $19.27 per machine-hour. The actual overhead applied is 42,100 machine-hours * $19.27 = $811,267. The actual overhead is $828,610, so the overhead is underapplied by $828,610 - $811,267 = $17,343.

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

Accepted Answer

Predetermined overhead rate = Estimated total manufacturing overhead at capacity ÷ Estimated total amount of the allocation base at capacity = $334, 080 ÷ 36, 000 machine-hours = $9.28 per machine-hour
Manufacturing overhead applied = Predetermined overhead rate × Actual amount of the allocation base
= $9.28 per machine-hour × 150 machine-hours = $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

Accepted Answer

Predetermined overhead rate = Estimated total manufacturing overhead at capacity ÷ Estimated total amount of the allocation base at capacity = $231, 660 ÷ 33, 000 machine-hours = $7.02 per machine-hour

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.

Accepted Answer

When the predetermined overhead rate is based on the level of activity at capacity, it means that the rate was calculated based on the amount of overhead costs expected to be incurred at full capacity. Therefore, products will only be charged for the capacity they use, as the predetermined overhead rate only accounts for this level of activity. Any unused capacity will not be charged for since it is not included in the predetermined rate.

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

Accepted Answer

Predetermined overhead rate = Estimated total manufacturing overhead at capacity ÷ Estimated total amount of the allocation base at capacity = $334, 080 ÷ 36, 000 machine-hours = $9.28 per machine-hour
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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

Accepted Answer

Predetermined overhead rate = Estimated total manufacturing overhead at capacity ÷ Estimated total amount of the allocation base at capacity = $57, 120 ÷ 21, 000 machine-hours = $2.72 per machine-hour
 11eaa0c8_9700_8b2e_9cb2_23484a9d6973_TB2487_00

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

Accepted Answer

Manufacturing overhead applied = Predetermined overhead rate × Actual amount of the allocation base
= $11.52 per machine-hour × 150 machine-hours = $1, 728.00

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.

Accepted Answer

When the predetermined overhead rate is based on the level of activity at capacity, any underapplied manufacturing overhead can be attributed to unused capacity. Since the cost is not tied to any specific product, it can be treated as a period expense. Therefore, it is true that 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

Accepted Answer

Predetermined overhead rate = Estimated total manufacturing overhead at capacity ÷ Estimated total amount of the allocation base at capacity = $3, 384, 360 ÷ 79, 000 machine-hours = $42.84 per machine-hour

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

Accepted Answer

The predetermined overhead rate would be calculated as follows:
Predetermined overhead rate = Estimated manufacturing overhead cost / Estimated allocation base
= $334,080 / 29,000 machine-hours
= $11.51 per machine-hour

Since Job B04D required 150 machine-hours, the applied manufacturing overhead would be:
Applied manufacturing overhead = Predetermined overhead rate * Actual machine-hours used
= $11.51 per machine-hour * 150 machine-hours
= $1,726.50

The actual manufacturing overhead for the year was $334,080, which is the same as the estimated manufacturing overhead based on the capacity of 36,000 machine-hours. Therefore, the manufacturing overhead was not over- or under-applied using the estimated manufacturing overhead rate based on capacity. However, since the company actually only used 26,600 machine-hours during the year, the amount of manufacturing overhead that was applied to all jobs based on the predetermined overhead rate was too high by:
Overapplied manufacturing overhead = Applied manufacturing overhead - Actual manufacturing overhead
= $1,726.50 - $334,080
= $27,648

Therefore, the correct answer is B, $27,648 underapplied.

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.

Accepted Answer

If overhead includes significant fixed costs, then the unit product costs will not be stable regardless of the budgeted level of activity for the period. As activity levels increase, the fixed costs will be spread over more units, resulting in a decrease in per-unit fixed cost and a decrease in unit product cost. Therefore, the unit product cost will vary with changes in activity level.

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

Accepted Answer

Predetermined overhead rate = Estimated total manufacturing overhead ÷ Estimated total amount of the allocation base = $334, 080 ÷ 29, 000 machine-hours = $11.52 per machine-hour

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

Accepted Answer

The answer of (Appendix 4B)The management of Aamot Corporation would...

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

Accepted Answer

Under the new system, the predetermined overhead rate would be calculated as:
Predetermined overhead rate = Estimated manufacturing overhead / Estimated activity at capacity
= $3,384,360 / 79,000 machine-hours
= $42.80 per machine-hour

Using this rate, the manufacturing overhead applied to production would be:
Applied manufacturing overhead = Predetermined overhead rate x Actual activity level
= $42.80 per machine-hour x 63,500 machine-hours
= $2,720,300

The actual manufacturing overhead for the year is given as $3,384,360, which is more than the applied overhead of $2,720,300. Therefore, there is underapplied overhead.

Underapplied overhead = Actual manufacturing overhead - Applied manufacturing overhead
= $3,384,360 - $2,720,300
= $664,060

Hence, the correct answer is A) $664,020 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

Accepted Answer

Predetermined overhead rate = Estimated total manufacturing overhead at capacity ÷ Estimated total amount of the allocation base at capacity = $1, 702, 890 ÷ 63, 000 machine-hours = $27.03 per machine-hour
 11eaa0c8_9700_15fc_9cb2_8df6fbf8a720_TB2487_00

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

Accepted Answer

Predetermined overhead rate = Estimated total manufacturing overhead at capacity ÷ Estimated total amount of the allocation base at capacity = $2, 866, 500 ÷ 70, 000 machine-hours = $40.95 per machine-hour
 11eaa0c8_9703_2340_9cb2_e1a159813763_TB2487_00

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

Accepted Answer

Predetermined overhead rate = Estimated total manufacturing overhead at capacity ÷ Estimated total amount of the allocation base at capacity = $334, 080 ÷ 36, 000 machine-hours = $9.28 per machine-hour

Quiz 16: the Predetermined Overhead Rate and Capacity

(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.

(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.

(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.