1. 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.
2. 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.
3. 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?
4. 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?
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.
5. 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:
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?
7. If the company bases its predetermined overhead rate on capacity, the predetermined
overhead rate is closest to:
4A-7
8. If the company bases its predetermined overhead rate on capacity, by how much was
manufacturing overhead underapplied or overapplied?
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.
9. If the company bases its predetermined overhead rate on capacity, the predetermined
overhead rate is closest to:
4A-9
10. If the company bases its predetermined overhead rate on capacity, by how much was
manufacturing overhead underapplied or overapplied?
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.
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?
12. If the company bases its predetermined overhead rate on capacity, by how much was
manufacturing overhead underapplied or overapplied?
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.
13. 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:
14. 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:
15. 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?
16. If the company bases its predetermined overhead rate on capacity, the predetermined
overhead rate is closest to: