Chapter 03 – Appendix A The Predetermined Overhead Rate and Capacity
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Chapter 03 Appendix A The Predetermined Overhead Rate and Capacity
Answer Key
True / False Questions
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.
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Multiple Choice Questions
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?
Chapter 03 – Appendix A The Predetermined Overhead Rate and Capacity
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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?
Chapter 03 – Appendix A The Predetermined Overhead Rate and Capacity
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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:
Chapter 03 – Appendix A The Predetermined Overhead Rate and Capacity
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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:
Chapter 03 – Appendix A The Predetermined Overhead Rate and Capacity
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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.
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9. If the company bases its predetermined overhead rate on capacity, the predetermined
overhead rate is closest to:
10. If the company bases its predetermined overhead rate on capacity, by how much was
manufacturing overhead underapplied or overapplied?
Chapter 03 – Appendix A The Predetermined Overhead Rate and Capacity
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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?
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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.
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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:
Chapter 03 – Appendix A The Predetermined Overhead Rate and Capacity
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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:
Chapter 03 – Appendix A The Predetermined Overhead Rate and Capacity
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17. If the company bases its predetermined overhead rate on capacity, the amount of
manufacturing overhead charged to the job P50E is closest to:
Chapter 03 – Appendix A The Predetermined Overhead Rate and Capacity
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18. If the company bases its predetermined overhead rate on capacity, by how much was
manufacturing overhead underapplied or overapplied?
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.