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:
A) $336.00
B) $422.78
C) $389.27
D) $399.00

Question

Quizplus · Accepted Answer

The predetermined overhead rate based on capacity is calculated as total fixed manufacturing overhead divided by capacity machine-hours. Thus, $45,600 / 19,000 machine-hours = $2.40 per machine-hour. For Job K41P, the overhead charged is 140 machine-hours * $2.40 = $336.00.

The Management of Pundt Corporation Would Like to Investigate the Possibility