Chapter 03 – Appendix A The Predetermined Overhead Rate and Capacity
19. If the company bases its predetermined overhead rate on capacity, the predetermined
overhead rate is closest to:
20. If the company bases its predetermined overhead rate on capacity, the amount of
manufacturing overhead charged to the job E82X is closest to:
Chapter 03 – Appendix A The Predetermined Overhead Rate and Capacity
21. 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
Essay Questions
22. The management of Svatek 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 16,000 machine-hours. In
addition, capacity is 20,000 machine-hours and the actual activity for the year is 17,800
machine-hours. All of the manufacturing overhead is fixed and is $51,200 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 manufacturing overhead for the year if the
predetermined overhead rate is based on the amount of the allocation base at capacity.
Predetermined overhead rate = Estimated total manufacturing overhead at capacity
Estimated total amount of the allocation base at capacity = $51,200 20,000 MHs = $2.56
per MH
Chapter 03 – Appendix A The Predetermined Overhead Rate and Capacity
23. The management of Rainha 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 13,000 machine-hours. In
addition, capacity is 16,000 machine-hours and the actual activity for the year is 12,900
machine-hours. All of the manufacturing overhead is fixed and is $29,120 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 predetermined overhead rate if the predetermined overhead rate is based on
the amount of the allocation base at capacity.
b. Determine the underapplied or overapplied manufacturing overhead for the year if the
predetermined overhead rate is based on the amount of the allocation base at capacity.
Chapter 03 – Appendix A The Predetermined Overhead Rate and Capacity
3A-18
24. The management of Scurlock 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 19,000
machine-hours. In addition, capacity is 21,000 machine-hours and the actual activity for the
year is 18,200 machine-hours. All of the manufacturing overhead is fixed and is $71,820 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.
Required:
a. Determine the predetermined overhead rate if the predetermined overhead rate is based on
the estimated amount of the allocation base.
b. Determine the underapplied or overapplied manufacturing 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 manufacturing overhead for the year if the
predetermined overhead rate is based on the amount of the allocation base at capacity.
Chapter 03 – Appendix A The Predetermined Overhead Rate and Capacity
Chapter 03 – Appendix A The Predetermined Overhead Rate and Capacity
3A-20
25. The management of Gruwell 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 48,000
machine-hours. In addition, capacity is 53,000 machine-hours and the actual activity for the
year is 47,700 machine-hours. All of the manufacturing overhead is fixed and is $1,144,800
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 and the actual amount of
manufacturing overhead for the year. Job J42O, which required 40 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 J42O if the predetermined
overhead rate is based on estimated amount of the allocation base.
c. Determine the underapplied or overapplied manufacturing 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 J42O if the predetermined
overhead rate is based on the amount of the allocation base at capacity.
f. Determine the underapplied or overapplied manufacturing overhead for the year if the
predetermined overhead rate is based on the amount of the allocation base at capacity.
Chapter 03 – Appendix A The Predetermined Overhead Rate and Capacity
3A-21
Chapter 03 – Appendix A The Predetermined Overhead Rate and Capacity
Chapter 03 – Appendix A The Predetermined Overhead Rate and Capacity
3A-23
26. The management of Niemeyer 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 70,000
machine-hours. In addition, capacity is 82,000 machine-hours and the actual activity for the
year is 72,900 machine-hours. All of the manufacturing overhead is fixed and is $4,132,800
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 and the actual amount of
manufacturing overhead for the year. Job O65A, which required 300 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 O65A if the predetermined
overhead rate is based on the amount of the allocation base at capacity.
c. Determine the underapplied or overapplied manufacturing overhead for the year if the
predetermined overhead rate is based on the amount of the allocation base at capacity.
Chapter 03 – Appendix A The Predetermined Overhead Rate and Capacity
Chapter 03 – Appendix A The Predetermined Overhead Rate and Capacity
27. The management of Trew 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 46,000 machine-hours and the actual activity for the year is 36,900
machine-hours. All of the manufacturing overhead is fixed and is $697,820 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.
Required:
a. Determine the underapplied or overapplied manufacturing 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 manufacturing overhead for the year if the
predetermined overhead rate is based on the amount of the allocation base at capacity.
Chapter 03 – Appendix A The Predetermined Overhead Rate and Capacity