The management of Amacker Corporation would like to investigate the possibility
ID: 2355356 • Letter: T
Question
The management of Amacker Corporation would like to investigate the possibility of basing its prede-termined 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 43,000 machine-hours and the actual activity for the year is 38,100 machine-hours. All of the manufacturing overhead is fixed and is $604,580 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.Explanation / Answer
1. capacity is 43,000 machine-hours 2. Est amount of the allocation base for the upcoming year is 37,000 machinehours 3. actual activity for the year is 38,100 machine-hours 4. manufacturing overhead is fixed and is $604,580 A. Determine the predetermined overhead rate if the predetermined overhead rate is based on the estimated amount of the allocation base. PreDetermined OH rate = Mfg OH/Est McHrs = $16.34 per McHr B. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the estimated amount of the allocation base. Actual McHrs used is 38100. So OH applied is 38100*16.34 = $622,554 Thus OH were Underapplied by $604,580- $622,554 = -$17,794 C. Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity. PreDetermined OH rate = Mfg OH/Est McHrs = $14.06 per McHr D. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity. Actual McHrs used is 38100. So OH applied is 38100*14.06= $535,686 Thus OH were Overapplied by $604,580-$535,686 = $68,894
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