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33) 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
35
34) 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.
35) 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.
Estimated activity for the upcoming year
43,000
machine-hours
Capacity
50,000
machine-hours
Actual activity for the year
45,400
machine-hours
Manufacturing overhead (all fixed)
$989,000
per year
Required:
Determine the cost of unused capacity for the year if the predetermined overhead rate is based on
activity at capacity.
36) 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.
39
37) 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:
Estimates at the beginning of the month:
Estimated total fixed manufacturing overhead
$24,500
Capacity of the jointer
250
hours
Actual results:
Sales
$71,706
Direct materials
$12,500
Direct labor
$17,900
Actual total fixed manufacturing overhead
$24,500
Selling and administrative expense
$9,700
Actual hours of jointer use
200
hours
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.
38) 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.
39) 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.
Estimated activity for the upcoming year
76,000
machine-hours
Capacity
94,000
machine-hours
Actual activity for the year
82,800
machine-hours
Manufacturing overhead (all fixed)
$
5,572,320
per year
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 yearif the predetermined overhead rate is based on
activity at capacity.
40) 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:
Estimates at the beginning of the month:
Estimated total fixed manufacturing overhead
$24,288
Capacity of the bandsaw
240
hours
Actual results:
Sales
$71,473
Direct materials
$10,400
Direct labor
$17,300
Actual total fixed manufacturing overhead
$24,288
Selling and administrative expense
$9,100
Actual hours of bandsaw use
230
hours
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.
41) 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.
Estimated activity for the upcoming year
15,000
machine-hours
Capacity
18,000
machine-hours
Actual activity for the year
15,800
machine-hours
Manufacturing overhead (all fixed)
$
43,200
per 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 the cost of unused capacity for the yearif the predetermined overhead rate is based on
activity at capacity.
42) 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:
Estimates at the beginning of the month:
Estimated total fixed manufacturing overhead
$22,701
Capacity of the lathe
230
hours
Actual results:
Actual total fixed manufacturing overhead
$22,701
Actual hours of lathe use
210
hours
Required:
a. Calculate the predetermined overhead rate based on capacity.
b. Calculate the manufacturing overhead applied.
c. Calculate the cost of unused capacity.
