The management of Featheringham Corporation would like to investigate the possib
ID: 2340247 • Letter: T
Question
The management of Featheringham 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 50,600 machine-hours. Capacity is 63,600 machine-hours and the actual level of activity for the year is assumed to be 47,600 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 $2,837,196 per year. It is assumed that a number of jobs were worked on during the year, one of which was Job Z77W which required 410 machine-hours If the company bases its predetermined overhead rate on capacity, then the amount of manufacturing overhead charged to job Z77W is closest to: Multiple Choice $18,290.10 $23,45200 $24,777.88 $24.438.03Explanation / Answer
Solution:
Predetermined Overhead Rate on Capacity = Total Estimated Manufacturing Overhead / Estimated Capacity for the Year
Here,
Total Estimated Manufacturing Overhead = $2,837,196
Estimated Capacity for the Year = 63,600 Machine Hours
So,
Predetermined Overhead Rate on Capacity = Total Estimated Manufacturing Overhead $2,837,196 / Estimated Capacity for the Year 63,600 Machine Hours
= $44.61 per machine hour
The amount of manufacturing overhead charged to job Z77W is = Required Machine Hours for Job 410 Machine Hours x Overhead Rate $44.61
= $18,290.10
Hence, the correct option is $18,290.10
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