App03A.doc

Appendix 3A, The Predetermined Overhead Rate and Capacity

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ID OriginCMA/CPA origin

1 T/F M x New, 11/27/2005, B E.N.2 M/C M x 6/27/2007 App3A Single A1 E.N.3 M/C M x 6/27/2007 App3A Single B1 E.N.

3A-1 4-9 Multipart M/C M x 6/27/2007 App3A MC A1 E.N.

3A-2 10-13 Multipart M/C M x 6/27/2007 App3A MC B1 E.N.

3A-3 14-15 Multipart M/C M x 6/27/2007 App3A MC C1 E.N.

3A-4 16-18 Multipart M/C M x 6/27/2007 App3A MC D1 E.N.

3A-5 19-20 Multipart M/C M x 6/27/2007 App3A MC E1 E.N.

21 Problem M x6/27/2007 App3A Problem A1 E.N.

22 Problem M x6/27/2007 App3A Problem B1 E.N.

23 Problem M x6/27/2007 App3A Problem C1 E.N.

24 Problem M x 6/27/2007 App3A Problem E.N.

3A-1


D1

25 Problem M x6/27/2007 App3A Problem E1 E.N.

26 Problem M x6/27/2007 App3A Problem F1 E.N.

3A-2


True / False Questions

1. If the predetermined overhead rate is based on the estimated total amount of the allocation base at capacity, it is more likely that overhead will be overapplied than underapplied. True False

Multiple Choice Questions

2. The management of Baggerly 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 81,000 machine-hours. In addition, capacity is 95,000 machine-hours and the actual level of activity for the year is 84,900 machine-hours. All of the manufacturing overhead is fixed and is $6,617,700 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. $318,630 OverappliedB. $703,566 UnderappliedC. $703,566 OverappliedD. $318,630 Underapplied

3A-3


3. The management of Mcneff 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? A. $27,144 UnderappliedB. $353,808 UnderappliedC. $27,144 OverappliedD. $353,808 Overapplied

The management of Wymer 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 50,000 machine-hours. In addition, capacity is 59,000 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 $1,622,500 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. A number of jobs were worked on during the year, one of which was Job J44V. This job required 230 machine-hours.

4. 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. $30.38B. $30.44C. $27.50D. $32.45

3A-4


5. 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 J44V is closest to: A. $6,325.00B. $7,463.50C. $7,001.41D. $6,988.30

6. 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. $156,750 OverappliedB. $107,085 OverappliedC. $107,085 UnderappliedD. $156,750 Underapplied

7. If the company bases its predetermined overhead rate on capacity, the predetermined overhead rate is closest to: A. $32.45B. $27.50C. $30.44D. $30.38

8. If the company bases its predetermined overhead rate on capacity, the amount of manufacturing overhead charged to the job J44V is closest to: A. $6,988.30B. $6,325.00C. $7,001.41D. $6,785.00

3A-5


9. If the company bases its predetermined overhead rate on capacity, by how much was manufacturing overhead underapplied or overapplied? A. $107,085 OverappliedB. $156,750 OverappliedC. $156,750 UnderappliedD. $107,085 Underapplied

The management of Haigler 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 64,000 machine-hours. In addition, capacity is 80,000 machine-hours and the actual level of activity for the year is 66,300 machine-hours. All of the manufacturing overhead is fixed and is $3,788,800 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.


11. 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. $648,832 OverappliedB. $648,832 UnderappliedC. $136,160 OverappliedD. $136,160 Underapplied

3A-6



13. If the company bases its predetermined overhead rate on capacity, by how much was manufacturing overhead underapplied or overapplied? A. $648,832 UnderappliedB. $136,160 UnderappliedC. $648,832 OverappliedD. $136,160 Overapplied

The management of Crapser 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 58,000 machine-hours. In addition, capacity is 67,000 machine-hours and the actual level of activity for the year is 59,000 machine-hours. All of the manufacturing overhead is fixed and is $2,098,440 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.


3A-7



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.


17. If the company bases its predetermined overhead rate on capacity, the amount of manufacturing overhead charged to the job K41P is closest to: A. $336.00B. $422.78C. $389.27D. $399.00

3A-8


18. If the company bases its predetermined overhead rate on capacity, by how much was manufacturing overhead underapplied or overapplied? A. $304 OverappliedB. $9,360 UnderappliedC. $9,360 OverappliedD. $304 Underapplied

The management of Bauza 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 12,000 machine-hours. In addition, capacity is 14,000 machine-hours and the actual level of activity for the year is 11,400 machine-hours. All of the manufacturing overhead is fixed and is $20,160 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.


20. If the company bases its predetermined overhead rate on capacity, by how much was manufacturing overhead underapplied or overapplied? A. $1,008 OverappliedB. $1,008 UnderappliedC. $3,744 OverappliedD. $3,744 Underapplied

3A-9


Essay Questions

21. The management of Rathburn 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 43,000 machine-hours. In addition, capacity is 47,000 machine-hours and the actual activity for the year is 42,600 machine-hours. All of the manufacturing overhead is fixed and is $848,820 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 and the actual amount of manufacturing overhead for the year. Job F31I, which required 310 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 amount of the allocation base.

b. Determine how much overhead would be applied to Job F31I if the predetermined overhead rate is based on estimated amount of the allocation base.

c. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the estimated amount of the allocation base.

d. Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity.

e. Determine how much overhead would be applied to Job F31I if the predetermined overhead rate is based on the amount of the allocation base at capacity.

f. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

3A-10


22. The management of Sharrar 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 45,000 machine-hours. In addition, capacity is 52,000 machine-hours and the actual activity for the year is 47,100 machine-hours. All of the manufacturing overhead is fixed and is $1,029,600 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 and the actual amount of manufacturing overhead for the year.

Required:


b. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the estimated amount of the allocation base.

c. Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity.

d. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

3A-11


23. The management of Polcyn 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 71,000 machine-hours. In addition, capacity is 86,000 machine-hours and the actual activity for the year is 64,100 machine-hours. All of the manufacturing overhead is fixed and is $4,579,500 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 and the actual amount of manufacturing overhead for the year.

Required:

a. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the estimated amount of the allocation base.

b. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

3A-12


24. The management of Hendren 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 10,000 machine-hours. In addition, capacity is 12,000 machine-hours and the actual activity for the year is 10,100 machine-hours. All of the manufacturing overhead is fixed and is $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 and the actual amount of manufacturing overhead for the year. Job A76W, which required 420 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 amount of the allocation base at capacity.

b. Determine how much overhead would be applied to Job A76W if the predetermined overhead rate is based on the amount of the allocation base at capacity.

c. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

3A-13


25. The management of Cius 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 84,000 machine-hours. In addition, capacity is 91,000 machine-hours and the actual activity for the year is 82,200 machine-hours. All of the manufacturing overhead is fixed and is $5,962,320 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 and the actual amount of manufacturing overhead for the year.

Required:



3A-14


26. The management of Amacker 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 37,000 machine-hours. In addition, capacity is 43,000 machine-hours and the actual activity for the year is 38,100 machine-hours. All of the manufacturing overhead is fixed and is $604,580 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 and the actual amount of manufacturing overhead for the year.

Required:

Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

3A-15

Appendix 3A, The Predetermined Overhead Rate and Capacity Key

True / False Questions

1. If the predetermined overhead rate is based on the estimated total amount of the allocation base at capacity, it is more likely that overhead will be overapplied than underapplied. FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementLearning Objective: 9Level: Medium

3A-16


Multiple Choice Questions

2. The management of Baggerly 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 81,000 machine-hours. In addition, capacity is 95,000 machine-hours and the actual level of activity for the year is 84,900 machine-hours. All of the manufacturing overhead is fixed and is $6,617,700 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. $318,630 OverappliedB. $703,566 UnderappliedC. $703,566 OverappliedD. $318,630 Underapplied

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementLearning Objective: 9Level: Medium

3A-17


3. The management of Mcneff 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? A. $27,144 UnderappliedB. $353,808 UnderappliedC. $27,144 OverappliedD. $353,808 Overapplied


3A-18


The management of Wymer 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 50,000 machine-hours. In addition, capacity is 59,000 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 $1,622,500 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. A number of jobs were worked on during the year, one of which was Job J44V. This job required 230 machine-hours.



3A-19


5. 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 J44V is closest to: A. $6,325.00B. $7,463.50C. $7,001.41D. $6,988.30


3A-20






3A-21


8. If the company bases its predetermined overhead rate on capacity, the amount of manufacturing overhead charged to the job J44V is closest to: A. $6,988.30B. $6,325.00C. $7,001.41D. $6,785.00


3A-22


9. If the company bases its predetermined overhead rate on capacity, by how much was manufacturing overhead underapplied or overapplied? A. $107,085 OverappliedB. $156,750 OverappliedC. $156,750 UnderappliedD. $107,085 Underapplied


3A-23


The management of Haigler 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 64,000 machine-hours. In addition, capacity is 80,000 machine-hours and the actual level of activity for the year is 66,300 machine-hours. All of the manufacturing overhead is fixed and is $3,788,800 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.



3A-24


11. 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. $648,832 OverappliedB. $648,832 UnderappliedC. $136,160 OverappliedD. $136,160 Underapplied




3A-25




3A-26


The management of Crapser 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 58,000 machine-hours. In addition, capacity is 67,000 machine-hours and the actual level of activity for the year is 59,000 machine-hours. All of the manufacturing overhead is fixed and is $2,098,440 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.



3A-27




3A-28


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.



3A-29


17. If the company bases its predetermined overhead rate on capacity, the amount of manufacturing overhead charged to the job K41P is closest to: A. $336.00B. $422.78C. $389.27D. $399.00


3A-30


18. If the company bases its predetermined overhead rate on capacity, by how much was manufacturing overhead underapplied or overapplied? A. $304 OverappliedB. $9,360 UnderappliedC. $9,360 OverappliedD. $304 Underapplied


3A-31


The management of Bauza 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 12,000 machine-hours. In addition, capacity is 14,000 machine-hours and the actual level of activity for the year is 11,400 machine-hours. All of the manufacturing overhead is fixed and is $20,160 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.



3A-32


20. If the company bases its predetermined overhead rate on capacity, by how much was manufacturing overhead underapplied or overapplied? A. $1,008 OverappliedB. $1,008 UnderappliedC. $3,744 OverappliedD. $3,744 Underapplied


3A-33


Essay Questions

21. The management of Rathburn 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 43,000 machine-hours. In addition, capacity is 47,000 machine-hours and the actual activity for the year is 42,600 machine-hours. All of the manufacturing overhead is fixed and is $848,820 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 and the actual amount of manufacturing overhead for the year. Job F31I, which required 310 machine-hours, is one of the jobs worked on during the year.

Required:


b. Determine how much overhead would be applied to Job F31I if the predetermined overhead rate is based on estimated amount of the allocation base.

c. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the estimated amount of the allocation base.

d. Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity.

e. Determine how much overhead would be applied to Job F31I if the predetermined overhead rate is based on the amount of the allocation base at capacity.

f. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

3A-34


3A-35



3A-36


22. The management of Sharrar 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 45,000 machine-hours. In addition, capacity is 52,000 machine-hours and the actual activity for the year is 47,100 machine-hours. All of the manufacturing overhead is fixed and is $1,029,600 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 and the actual amount of manufacturing overhead for the year.

Required:


b. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the estimated amount of the allocation base.

c. Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity.

d. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

3A-37



3A-38


23. The management of Polcyn 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 71,000 machine-hours. In addition, capacity is 86,000 machine-hours and the actual activity for the year is 64,100 machine-hours. All of the manufacturing overhead is fixed and is $4,579,500 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 and the actual amount of manufacturing overhead for the year.

Required:

a. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the estimated amount of the allocation base.


3A-39



3A-40


24. The management of Hendren 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 10,000 machine-hours. In addition, capacity is 12,000 machine-hours and the actual activity for the year is 10,100 machine-hours. All of the manufacturing overhead is fixed and is $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 and the actual amount of manufacturing overhead for the year. Job A76W, which required 420 machine-hours, is one of the jobs worked on during the year.

Required:


b. Determine how much overhead would be applied to Job A76W if the predetermined overhead rate is based on the amount of the allocation base at capacity.

c. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

3A-41



25. The management of Cius 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 84,000 machine-hours. In addition, capacity is 91,000 machine-hours and the actual activity for the year is 82,200 machine-hours. All of the manufacturing overhead is fixed and is $5,962,320 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 and the actual amount of manufacturing overhead for the year.

Required:




3A-42


26. The management of Amacker 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 37,000 machine-hours. In addition, capacity is 43,000 machine-hours and the actual activity for the year is 38,100 machine-hours. All of the manufacturing overhead is fixed and is $604,580 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 and the actual amount of manufacturing overhead for the year.

Required:

Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.


3A-43

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App03A.doc