Deck 18: The Predetermined Overhead Rate and Capacity

Question 1

(Appendix 2B) Dunnings Woodworking Corporation produces fine cabinets. The company uses a job-order costing system in which its predetermined overhead rate is based on capacity. The capacity of the factory is determined by the capacity of its constraint, which is an automated router. Additional information is provided below for the most recent month:

If the company bases its predetermined overhead rate on capacity,then the predetermined overhead rate is closest to:

A) $1.54 per machine-hour
B) $1.32 per machine-hour
C) $1.49 per machine-hour
D) $0.99 per machine-hour

Answer 1

D
Explanation:
Predetermined overhead rate = Estimated total manufacturing overhead at capacity ÷ Estimated total amount of the allocation base at capacity = $11,880 ÷ 12,000 machine-hours = $0.99 per machine-hour

Question 2

The management of Garn Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated activity for the coming year.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 activity for the upcoming year is 69,000 machine-hours.Capacity is 85,000 machine-hours.All of the manufacturing overhead is fixed and is $4,105,500 per year within the range of 69,000 to 85,000 machine-hours.If the Corporation bases its predetermined overhead rate on capacity but the actual level of activity for the year turns out to be 69,700 machine-hours,the cost of unused capacity shown on the income statement prepared for internal management purposes would be closest to:

A) $772,800
B) $780,640
C) $738,990
D) $41,650

Answer 2

C
Explanation:
Predetermined overhead rate = Estimated total manufacturing overhead at capacity ÷ Estimated total amount of the allocation base at capacity = $4,105,500 ÷ 85,000 machine-hours = $48.30 per machine-hour

Question 3

Rapier Woodworking Corporation produces fine cabinets.The company uses a job-order costing system in which its predetermined overhead rate is based on capacity.The capacity of the factory is determined by the capacity of its constraint,which is an automated jointer.Additional information is provided below for the most recent month:
The predetermined overhead rate based on hours at capacity is closest to:

A) $58.24 per hour
B) $49.50 per hour
C) $22.00 per hour
D) $18.70 per hour

Answer 3

D
Explanation:
Predetermined overhead rate based on capacity = Estimated total fixed manufacturing overhead cost at capacity ÷ Estimated total amount of the allocation base at capacity = $3,740 ÷ 200 hours = $18.70 per hour

Question 4

(Appendix 2B) Coble Woodworking Corporation produces fine cabinets. The company uses a job-order costing system in which its predetermined overhead rate is based on capacity. The capacity of the factory is determined by the capacity of its constraint, which is an automated shaper. Additional information is provided below for the most recent month:

The gross margin that would be reported on the income statement prepared for internal management purposes would be closest to:

A) $19,043
B) $16,593
C) $10,943
D) $79,268

Question 5

(Appendix 2B) Coble Woodworking Corporation produces fine cabinets. The company uses a job-order costing system in which its predetermined overhead rate is based on capacity. The capacity of the factory is determined by the capacity of its constraint, which is an automated shaper. Additional information is provided below for the most recent month:

The manufacturing overhead applied is closest to:

A) $7,500
B) $33,075
C) $8,100
D) $30,625

Question 6

(Appendix 2B) Coble Woodworking Corporation produces fine cabinets. The company uses a job-order costing system in which its predetermined overhead rate is based on capacity. The capacity of the factory is determined by the capacity of its constraint, which is an automated shaper. Additional information is provided below for the most recent month:

The cost of unused capacity that would be reported as a period expense on the income statement prepared for internal management purposes would be closest to:

A) $2,450
B) $0
C) $24,975
D) $25,575

Question 7

When the predetermined overhead rate is based on the level of activity at capacity,an item called the Cost of Unused Capacity may appear be treated as a period expense on income statements prepared for internal management use.

Question 8

Risser Woodworking Corporation produces fine cabinets.The company uses a job-order costing system in which its predetermined overhead rate is based on capacity.The capacity of the factory is determined by the capacity of its constraint,which is an automated jointer.Additional information is provided below for the most recent month:
The gross margin that would be reported on the income statement prepared for internal management purposes would be closest to:

A) $10,242
B) $19,142
C) $17,954
D) $62,310

Question 9

The management of Krach 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 10,000 machine-hours.Capacity is 12,000 machine-hours and the actual level of activity for the year is assumed to be 9,500 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 $12,000 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,what would be the cost of unused capacity reported on the income statement prepared for internal management purposes?

A) $2,000
B) $2,500
C) $1,900
D) $600

Question 10

The management of Winterroth 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,then as shown on the income statement prepared for internal management purposes,the cost of unused capacity would be closest to:

A) $286,200
B) $400,680
C) 264,600
D) $136,080

Question 11

Dowty Woodworking Corporation produces fine cabinets.The company uses a job-order costing system in which its predetermined overhead rate is based on capacity.The capacity of the factory is determined by the capacity of its constraint,which is an automated lathe.Additional information is provided below for the most recent month:
The manufacturing overhead applied is closest to:

A) $19,964
B) $16,399
C) $7,639
D) $9,300

Question 12

When the fixed costs of capacity are spread over the estimated activity of the period rather than the level of activity at capacity,the units that are produced must shoulder the costs of unused capacity.

Question 13

Traeger Woodworking Corporation produces fine cabinets.The company uses a job-order costing system in which its predetermined overhead rate is based on capacity.The capacity of the factory is determined by the capacity of its constraint,which is an automated bandsaw.Additional information is provided below for the most recent month:
The cost of unused capacity that would be reported as a period expense on the income statement prepared for internal management purposes would be closest to:

A) $1,924
B) $18,136
C) $0
D) $18,765

Question 14

(Appendix 2B) Dunnings Woodworking Corporation produces fine cabinets. The company uses a job-order costing system in which its predetermined overhead rate is based on capacity. The capacity of the factory is determined by the capacity of its constraint, which is an automated router. Additional information is provided below for the most recent month:

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) $1.32 per machine-hour
B) $1.49 per machine-hour
C) $0.99 per machine-hour
D) $1.54 per machine-hour

Question 15

(Appendix 2B) Dunnings Woodworking Corporation produces fine cabinets. The company uses a job-order costing system in which its predetermined overhead rate is based on capacity. The capacity of the factory is determined by the capacity of its constraint, which is an automated router. Additional information is provided below for the most recent month:

The predetermined overhead rate based on hours at capacity is closest to:

A) $84.60 per hour
B) $61.10 per hour
C) $61.54 per hour
D) $44.44 per hour

Question 16

(Appendix 2B) Mausser Woodworking Corporation produces fine cabinets. The company uses a job-order costing system in which its predetermined overhead rate is based on capacity. The capacity of the factory is determined by the capacity of its constraint, which is an automated jointer. Additional information is provided below for the most recent month:

The cost of unused capacity that would be reported as a period expense on the income statement prepared for internal management purposes would be closest to:

A) $0
B) $2,348
C) $832
D) $3,012

Question 17

(Appendix 2B) Dunnings Woodworking Corporation produces fine cabinets. The company uses a job-order costing system in which its predetermined overhead rate is based on capacity. The capacity of the factory is determined by the capacity of its constraint, which is an automated router. Additional information is provided below for the most recent month:

The manufacturing overhead applied is closest to:

A) $7,943
B) $8,000
C) $5,778
D) $10,998

Question 18

If the predetermined overhead rate on is based on the estimated level of activity for the current period,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 19

(Appendix 2B) Coble Woodworking Corporation produces fine cabinets. The company uses a job-order costing system in which its predetermined overhead rate is based on capacity. The capacity of the factory is determined by the capacity of its constraint, which is an automated shaper. Additional information is provided below for the most recent month:

The predetermined overhead rate based on hours at capacity is closest to:

A) $30.00 per hour
B) $122.50 per hour
C) $32.40 per hour
D) $132.30 per hour

Question 20

(Appendix 2B) Mausser Woodworking Corporation produces fine cabinets. The company uses a job-order costing system in which its predetermined overhead rate is based on capacity. The capacity of the factory is determined by the capacity of its constraint, which is an automated jointer. Additional information is provided below for the most recent month:

The gross margin that would be reported on the income statement prepared for internal management purposes would be closest to:

A) $52,760
B) $3,344
C) $12,644
D) $11,812

Question 21

(Appendix 2B) The management of Featheringham 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 62,000 machine-hours. Capacity is 75,000 machine-hours and the actual level of activity for the year is assumed to be 59,000 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 $2,836,500 per year. It is assumed that a number of jobs were worked on during the year, one of which was Job Z77W which required 410 machine-hours.
If the company bases its predetermined overhead rate on capacity,what would be the cost of unused capacity reported on the income statement prepared for internal management purposes?

A) $137,250
B) $605,120
C) $491,660
D) $467,870

Question 22

(Appendix 2B) The management of Featheringham 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 62,000 machine-hours. Capacity is 75,000 machine-hours and the actual level of activity for the year is assumed to be 59,000 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 $2,836,500 per year. It is assumed that a number of jobs were worked on during the year, one of which was Job Z77W which required 410 machine-hours.
If the company bases its predetermined overhead rate on capacity,then the amount of manufacturing overhead charged to job Z77W is closest to:

A) $15,506.20
B) $19,065.00
C) $20,051.12
D) $19,711.27

Question 23

(Appendix 2B) Zackery Woodworking Corporation produces fine cabinets. The company uses a job-order costing system in which its predetermined overhead rate is based on capacity. The capacity of the factory is determined by the capacity of its constraint, which is an automated lathe. Additional information is provided below for the most recent month:

If the company bases its predetermined overhead rate on capacity,what would be the cost of unused capacity reported on the income statement prepared for internal management purposes?

A) $295,856
B) $848,618
C) $583,020
D) $552,762

Question 24

The management of Michaeli 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.
Required:
Determine the cost of unused capacity for the year if the predetermined overhead rate is based on activity at capacity.

Question 25

The management of Schneiter 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 42,000 machine-hours.In addition,capacity is 46,000 machine-hours and the actual activity for the year is 43,000 machine-hours.All of the manufacturing overhead is fixed and is $734,160 per year.
Required:
a.Determine the predetermined overhead rate if the predetermined overhead rate is based on activity at capacity.
b.Determine the cost of unused capacity for the year if the predetermined overhead rate is based on activity at capacity.

Question 26

(Appendix 2B) Zackery Woodworking Corporation produces fine cabinets. The company uses a job-order costing system in which its predetermined overhead rate is based on capacity. The capacity of the factory is determined by the capacity of its constraint, which is an automated lathe. Additional information is provided below for the most recent month:

The cost of unused capacity that would be reported as a period expense on the income statement prepared for internal management purposes would be closest to:

A) $2,448
B) $296
C) $0
D) $1,620

Question 27

The management of Kotek 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 8,000 machine-hours.In addition,capacity is 10,000 machine-hours and the actual activity for the year is 8,700 machine-hours.All of the manufacturing overhead is fixed and is $6,400 per year.Job L77S,which required 220 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 activity at capacity.
b.Determine how much overhead would be applied to Job L77S if the predetermined overhead rate is based on activity at capacity.
c.Determine the cost of unused capacity for the year if the predetermined overhead rate is based on activity at capacity.

Question 28

(Appendix 2B) Dunnings Woodworking Corporation produces fine cabinets. The company uses a job-order costing system in which its predetermined overhead rate is based on capacity. The capacity of the factory is determined by the capacity of its constraint, which is an automated router. Additional information is provided below for the most recent month:

If the company bases its predetermined overhead rate on capacity,what would be the cost of unused capacity reported on the income statement prepared for internal management purposes?

A) $2,970
B) $2,541
C) $1,716
D) $4,257

Question 29

Marder Woodworking Corporation produces fine cabinets.The company uses a job-order costing system in which its predetermined overhead rate is based on capacity.The capacity of the factory is determined by the capacity of its constraint,which is an automated jointer.Additional information is provided below for the most recent month:
Required:
a.Calculate the predetermined overhead rate based on capacity.
b.Calculate the manufacturing overhead applied.
c.Determine the Gross Margin for the month.
d.Calculate the cost of unused capacity.

Question 30

(Appendix 2B) 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 69,000 machine-hours. Capacity is 82,000 machine-hours and the actual level of activity for the year is assumed to be 72,400 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 $4,130,340 per year. It is assumed that a number of jobs were worked on during the year, one of which was Job Q20L which required 470 machine-hours.
If the company bases its predetermined overhead rate on capacity,then the predetermined overhead rate is closest to:

A) $57.05 per machine-hour
B) $59.86 per machine-hour
C) $50.37 per machine-hour
D) $60.83 per machine-hour

Question 31

(Appendix 2B) The management of Featheringham 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 62,000 machine-hours. Capacity is 75,000 machine-hours and the actual level of activity for the year is assumed to be 59,000 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 $2,836,500 per year. It is assumed that a number of jobs were worked on during the year, one of which was Job Z77W which required 410 machine-hours.
If the company bases its predetermined overhead rate on capacity,then the predetermined overhead rate is closest to:

A) $48.08 per machine-hour
B) $37.82 per machine-hour
C) $48.91 per machine-hour
D) $45.75 per machine-hour

Question 32

(Appendix 2B) Zackery Woodworking Corporation produces fine cabinets. The company uses a job-order costing system in which its predetermined overhead rate is based on capacity. The capacity of the factory is determined by the capacity of its constraint, which is an automated lathe. Additional information is provided below for the most recent month:

The manufacturing overhead applied is closest to:

A) $9,900
B) $5,832
C) $7,748
D) $7,452

Question 33

Knipple Woodworking Corporation produces fine cabinets.The company uses a job-order costing system in which its predetermined overhead rate is based on capacity.The capacity of the factory is determined by the capacity of its constraint,which is an automated bandsaw.Additional information is provided below for the most recent month:
Required:
Prepare an income statement following the Example in Appendix 2B in which any cost of unused capacity is directly recorded on the income statement as a period expense.

Question 34

The management of Buelow 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.
Job Q58A,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 estimated activity for the upcoming year.
b.Determine how much overhead would be applied to Job Q58A if the predetermined overhead rate is based on estimated activity for the upcoming year.
c.Determine the predetermined overhead rate if the predetermined overhead rate is based on the activity at capacity.
d.Determine how much overhead would be applied to Job Q58A if the predetermined overhead rate is based on activity at capacity.
e.Determine the cost of unused capacity for the year if the predetermined overhead rate is based on activity at capacity.

Question 35

(Appendix 2B) Zackery Woodworking Corporation produces fine cabinets. The company uses a job-order costing system in which its predetermined overhead rate is based on capacity. The capacity of the factory is determined by the capacity of its constraint, which is an automated lathe. Additional information is provided below for the most recent month:

If the company bases its predetermined overhead rate on capacity,then the predetermined overhead rate is closest to:

A) $72.16 per machine-hour
B) $70.38 per machine-hour
C) $76.11 per machine-hour
D) $64.78 per machine-hour

Question 36

The management of Bouyer 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 34,000 machine-hours.In addition,capacity is 37,000 machine-hours and the actual activity for the year is 34,700 machine-hours.All of the manufacturing overhead is fixed and is $377,400 per year.
Required:
Determine the cost of unused capacity for the year if the predetermined overhead rate is based on activity at capacity.

Question 37

(Appendix 2B) 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 69,000 machine-hours. Capacity is 82,000 machine-hours and the actual level of activity for the year is assumed to be 72,400 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 $4,130,340 per year. It is assumed that a number of jobs were worked on during the year, one of which was Job Q20L which required 470 machine-hours.
If the company bases its predetermined overhead rate on capacity,what would be the cost of unused capacity reported on the income statement prepared for internal management purposes?

A) $654,810
B) $687,076
C) $547,669
D) $483,552

Question 38

(Appendix 2B) 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 69,000 machine-hours. Capacity is 82,000 machine-hours and the actual level of activity for the year is assumed to be 72,400 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 $4,130,340 per year. It is assumed that a number of jobs were worked on during the year, one of which was Job Q20L which required 470 machine-hours.
If the company bases its predetermined overhead rate on capacity,then the amount of manufacturing overhead charged to Job Q20L is closest to:

A) $28,589.98
B) $26,592.60
C) $26,812.98
D) $23,673.90

Question 39

(Appendix 2B) 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 69,000 machine-hours. Capacity is 82,000 machine-hours and the actual level of activity for the year is assumed to be 72,400 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 $4,130,340 per year. It is assumed that a number of jobs were worked on during the year, one of which was Job Q20L which required 470 machine-hours.
If the company bases its predetermined overhead rate on the estimated amount of the allocation base for the upcoming year,then the amount of manufacturing overhead charged to Job Q20L is closest to:

A) $23,673.90
B) $26,812.98
C) $28,589.98
D) $28,134.20

Question 40

(Appendix 2B) 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 69,000 machine-hours. Capacity is 82,000 machine-hours and the actual level of activity for the year is assumed to be 72,400 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 $4,130,340 per year. It is assumed that a number of jobs were worked on during the year, one of which was Job Q20L which required 470 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) $57.05 per machine-hour
B) $60.83 per machine-hour
C) $59.86 per machine-hour
D) $50.37 per machine-hour

Question 41

Danaher Woodworking Corporation produces fine furniture.The company uses a job-order costing system in which its predetermined overhead rate is based on capacity.The capacity of the factory is determined by the capacity of its constraint,which is an automated lathe.Additional information is provided below for the most recent month:
Required:
a.Calculate the predetermined overhead rate based on capacity.
b.Calculate the manufacturing overhead applied.
c.Calculate the cost of unused capacity.

Question 42

The management of Wrights 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.
Required:
a.Determine the predetermined overhead rate if the predetermined overhead rate is based on the estimated activity for the upcoming year.
at capacity.
b.Determine the cost of unused capacity for the year if the predetermined overhead rate is based on activity at capacity.