The management of Aamot Corporation would like to investigate the possibility of
ID: 2489441 • Letter: T
Question
The management of Aamot 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 91,700 machine-hours. In addition, capacity is 100,000 machine-hours and the actual level of activity for the year is 90,650 machine-hours. All of the manufacturing overhead is fixed and is $6,416,249 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? (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole number.)
Explanation / Answer
manufacturing overhead 6416249 allocation base hr 91700 pre determined manufacturing overhead per hour 6416249/91700 69.97 per machine hour actual hours 90650 overhead absorbed 90650*69.97 6342781 manufacturing overhead underapplied 73468.5
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