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?
A)$173,712 Underapplied
B)$418,992 Underapplied
C)$418,992 Overapplied
D)$173,712 Overapplied

Question

Quizplus · 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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The Management of Foy Corporation Would Like to Investigate the Possibility