Question 1

The management of Bullinger 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 9,000 machine-hours. Capacity is 12,000 machine-hours and the actual level of activity for the year is assumed to be 7,700 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 $11,880 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 the estimated amount of the allocation base for the upcoming year, then the predetermined overhead rate is closest to:

Accepted Answer

A)   $1.32 per machine-hour
B)   $1.49 per machine-hour
C)   $0.99 per machine-hour
D)   $1.54 per machine-hourE) None of the above
F) C) and D)

Question 2

Knipple Woodworking Corporation produces fine cabinets. The company uses a job-order costing system in which its predetermined overhead rate is based on capacity. The capacity of the factory is determined by the capacity of its constraint, which is an automated bandsaw. Additional information is provided below for the most recent month:
  Required:
Prepare an income statement following the Example in Appendix 3B in which any cost of unused capacity is directly recorded on the income statement as a period expense.

Accepted Answer

The answer of Knipple Woodworking Corporation produces fine cabinets. The...

Exam 15: the Predetermined Overhead Rate and Capacity

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Exam 15: the Predetermined Overhead Rate and Capacity

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