Question 1

The management of Keeter 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 89,000 machine-hours. In addition, capacity is 96,000 machine-hours and the actual level of activity for the year is 88,600 machine-hours. All of the manufacturing overhead is fixed and is $7,176,960 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:

Accepted Answer

Predetermined overhead rate = Estimated total manufacturing overhead at capacity F1F1F1S1F1F1F10 Estimated total amount of the allocation base at capacity = $7,176,960 F1F1F1S1F1F1F10 96,000 machine-hours = $74.76 per machine-hour

Question 2

If predetermined overhead rates are based on budgeted activity and overhead includes significant fixed costs,then the unit product costs will fluctuate depending on the budgeted level of activity for the period.

Accepted Answer

Predetermined overhead rates are based on budgeted activity and include both fixed and variable overhead costs. If the overhead costs include significant fixed costs, then the total overhead costs will not change with changes in activity levels. As a result, as the level of budgeted activity increases, the unit product costs will decrease and vice versa. Therefore, the unit product costs will fluctuate depending on the budgeted level of activity for the period.

Question 3

The management of Bellon 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 23,000 machine-hours. In addition, capacity is 27,000 machine-hours and the actual level of activity for the year is 23,300 machine-hours. All of the manufacturing overhead is fixed and is $142,830 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 P50E. This job required 160 machine-hours.
-If the company bases its predetermined overhead rate on capacity,the predetermined overhead rate is closest to:

Accepted Answer

Predetermined overhead rate = Estimated total manufacturing overhead at capacity F1F1F1S1F1F1F10 Estimated total amount of the allocation base at capacity = $142,830 F1F1F1S1F1F1F10 27,000 machine-hours = $5.29 per machine-hour

Question 4

The management of Bellon 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 23,000 machine-hours. In addition, capacity is 27,000 machine-hours and the actual level of activity for the year is 23,300 machine-hours. All of the manufacturing overhead is fixed and is $142,830 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 P50E. This job required 160 machine-hours.
-If the company bases its predetermined overhead rate on capacity,by how much was manufacturing overhead underapplied or overapplied?

Accepted Answer

Predetermined overhead rate = Estimated total manufacturing overhead at capacity F1F1F1S1F1F1F10 Estimated total amount of the allocation base at capacity = $142,830 F1F1F1S1F1F1F10 27,000 machine-hours = $5.29 per machine-hour
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Question 5

The management of Foy 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 86,000 machine-hours. In addition, capacity is 94,000 machine-hours and the actual level of activity for the year is 88,200 machine-hours. All of the manufacturing overhead is fixed and is $6,790,560 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?

Accepted Answer

Predetermined overhead rate = Estimated total manufacturing overhead F1F1F1S1F1F1F10 Estimated total amount of the allocation base = $6,790,560 F1F1F1S1F1F1F10 86,000 machine-hours = $78.96 per machine-hour
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Question 6

The management of Griswell 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 39,000 machine-hours.In addition,capacity is 45,000 machine-hours and the actual level of activity for the year is 40,200 machine-hours.All of the manufacturing overhead is fixed and is $702,000 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,by how much was manufacturing overhead underapplied or overapplied?

Accepted Answer

Predetermined overhead rate = Estimated total manufacturing overhead at capacity F1F1F1S1F1F1F10 Estimated total amount of the allocation base at capacity = $702,000 F1F1F1S1F1F1F10 45,000 machine-hours = $15.60 per machine-hour
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Question 7

The management of Bellon 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 23,000 machine-hours. In addition, capacity is 27,000 machine-hours and the actual level of activity for the year is 23,300 machine-hours. All of the manufacturing overhead is fixed and is $142,830 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 P50E. This job required 160 machine-hours.
-If the company bases its predetermined overhead rate on capacity,the amount of manufacturing overhead charged to the job P50E is closest to:

Accepted Answer

Predetermined overhead rate = Estimated total manufacturing overhead at capacity F1F1F1S1F1F1F10 Estimated total amount of the allocation base at capacity = $142,830 F1F1F1S1F1F1F10 27,000 machine-hours = $5.29 per machine-hour
Manufacturing overhead applied = Predetermined overhead rate F1F1F1S1F1F1F10 Actual amount of the allocation base
= $5.29 per machine-hour F1F1F1S1F1F1F10 160 machine-hours = $846.40

Question 8

The management of Keeter 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 89,000 machine-hours. In addition, capacity is 96,000 machine-hours and the actual level of activity for the year is 88,600 machine-hours. All of the manufacturing overhead is fixed and is $7,176,960 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:

Accepted Answer

Predetermined overhead rate = Estimated total manufacturing overhead F1F1F1S1F1F1F10 Estimated total amount of the allocation base = $7,176,960 F1F1F1S1F1F1F10 89,000 machine-hours = $80.64 per machine-hour

Question 9

The management of Bow 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 54,000 machine-hours. In addition, capacity is 68,000 machine-hours and the actual level of activity for the year is 53,100 machine-hours. All of the manufacturing overhead is fixed and is $2,129,760 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 E82X. This job required 100 machine-hours.
-If the company bases its predetermined overhead rate on capacity,the predetermined overhead rate is closest to:

Accepted Answer

Predetermined overhead rate = Estimated total manufacturing overhead at capacity F1F1F1S1F1F1F10 Estimated total amount of the allocation base at capacity = $2,129,760 F1F1F1S1F1F1F10 68,000 machine-hours = $31.32 per machine-hour

Question 10

The management of Chaloux 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.  If the company bases its predetermined overhead rate on capacity,by how much was manufacturing overhead underapplied or overapplied?

Accepted Answer

Predetermined overhead rate = Estimated total manufacturing overhead at capacity F1F1F1S1F1F1F10 Estimated total amount of the allocation base at capacity = $57,120 F1F1F1S1F1F1F10 21,000 machine-hours = $2.72 per machine-hour
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Question 11

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

Accepted Answer

The answer of When the fixed costs of capacity are...

Question 12

The management of Daguio 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 54,000 machine-hours. In addition, capacity is 63,000 machine-hours and the actual level of activity for the year is 53,000 machine-hours. All of the manufacturing overhead is fixed and is $1,871,100 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?

Accepted Answer

The answer of The management of Daguio Corporation would like...

Question 13

The management of Keeter 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 89,000 machine-hours. In addition, capacity is 96,000 machine-hours and the actual level of activity for the year is 88,600 machine-hours. All of the manufacturing overhead is fixed and is $7,176,960 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?

Accepted Answer

The correct answer is $32,256 Underapplied because the predetermined overhead rate is based on estimates, and the actual overhead costs exceeded the applied overhead by this amount.

Question 14

The management of Foy 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 86,000 machine-hours. In addition, capacity is 94,000 machine-hours and the actual level of activity for the year is 88,200 machine-hours. All of the manufacturing overhead is fixed and is $6,790,560 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?

Accepted Answer

Predetermined overhead rate = Estimated total manufacturing overhead at capacity F1F1F1S1F1F1F10 Estimated total amount of the allocation base at capacity = $6,790,560 F1F1F1S1F1F1F10 94,000 machine-hours = $72.24 per machine-hour
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Question 15

The management of Bellon 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 23,000 machine-hours. In addition, capacity is 27,000 machine-hours and the actual level of activity for the year is 23,300 machine-hours. All of the manufacturing overhead is fixed and is $142,830 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 P50E. This job required 160 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 P50E is closest to:

Accepted Answer

Manufacturing overhead applied = Predetermined overhead rate F1F1F1S1F1F1F10 Actual amount of the allocation base
= $6.21 per machine-hour F1F1F1S1F1F1F10 160 machine-hours = $993.60

Question 16

The management of Bow 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 54,000 machine-hours. In addition, capacity is 68,000 machine-hours and the actual level of activity for the year is 53,100 machine-hours. All of the manufacturing overhead is fixed and is $2,129,760 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 E82X. This job required 100 machine-hours.
-If the company bases its predetermined overhead rate on capacity,the amount of manufacturing overhead charged to the job E82X is closest to:

Accepted Answer

Predetermined overhead rate = Estimated total manufacturing overhead at capacity F1F1F1S1F1F1F10 Estimated total amount of the allocation base at capacity = $2,129,760 F1F1F1S1F1F1F10 68,000 machine-hours = $31.32 per machine-hour
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Question 17

The management of Bellon 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 23,000 machine-hours. In addition, capacity is 27,000 machine-hours and the actual level of activity for the year is 23,300 machine-hours. All of the manufacturing overhead is fixed and is $142,830 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 P50E. This job required 160 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:

Accepted Answer

Predetermined overhead rate = Estimated total manufacturing overhead F1F1F1S1F1F1F10 Estimated total amount of the allocation base = $142,830 F1F1F1S1F1F1F10 23,000 machine-hours = $6.21 per machine-hour

Question 18

The management of Bellon 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 23,000 machine-hours. In addition, capacity is 27,000 machine-hours and the actual level of activity for the year is 23,300 machine-hours. All of the manufacturing overhead is fixed and is $142,830 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 P50E. This job required 160 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?

Accepted Answer

Manufacturing overhead is underapplied when actual overhead costs exceed applied overhead costs. In this case, actual overhead costs were $21,436 and applied overhead costs were $19,573, so manufacturing overhead was underapplied by $1,863.

Question 19

The management of Keeter 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 89,000 machine-hours. In addition, capacity is 96,000 machine-hours and the actual level of activity for the year is 88,600 machine-hours. All of the manufacturing overhead is fixed and is $7,176,960 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?

Accepted Answer

If manufacturing overhead is underapplied, it means actual overhead incurred is higher than the overhead allocated based on the predetermined rate. If it is overapplied, it means actual overhead incurred is lower than the overhead allocated based on the predetermined rate. Therefore, if the predetermined rate is higher than the actual rate, manufacturing overhead will be overapplied, and if the predetermined rate is lower than the actual rate, manufacturing overhead will be underapplied. Since the answer choices only provide options for overapplied and underapplied, the only option that fits is D, which says manufacturing overhead is underapplied by $553,224.

Question 20

The management of Daguio 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 54,000 machine-hours. In addition, capacity is 63,000 machine-hours and the actual level of activity for the year is 53,000 machine-hours. All of the manufacturing overhead is fixed and is $1,871,100 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:

Accepted Answer

Predetermined overhead rate = Estimated total manufacturing overhead at capacity F1F1F1S1F1F1F10 Estimated total amount of the allocation base at capacity = $1,871,100 F1F1F1S1F1F1F10 63,000 machine-hours = $29.70 per machine-hour

Quiz 17: The Predetermined Overhead Rate and Capacity

If predetermined overhead rates are based on budgeted activity and overhead includes significant fixed costs,then the unit product costs will fluctuate depending on the budgeted level of activity for the period.

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