Appendix 3A, The Predetermined Overhead Rate and Capacity

LO6: Schedule of cost of goods manufactured

LO9: Overhead rate and capacity (App 3A)

LO4: Flow of costs and journal entries

LO2: Job-ordering costing documents

LO8: Under- or overapplied overhead

LO3: Predetermined overhead rate

LO1: Job order vs process costing

Professional Exam Adapted

LO5: Applying overhead

LO7: T-accounts

Difficulty

1 2 3 3A1 3A2 3A3 3A4 3A5 4-9 10-13 14-15 16-18 19-20 21 22 23 24

Question Type T/F M/C M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Problem Problem Problem Problem

M M M M M M M M M M M M

x x x x x x x x x x x x

ID New, 11/27/2005, B 6/27/2007 App3A Single A1 6/27/2007 App3A Single B1 6/27/2007 App3A MC A1 6/27/2007 App3A MC B1 6/27/2007 App3A MC C1 6/27/2007 App3A MC D1 6/27/2007 App3A MC E1 6/27/2007 App3A Problem A1 6/27/2007 App3A Problem B1 6/27/2007 App3A Problem C1 6/27/2007 App3A Problem

Origin E.N. E.N. E.N. E.N. E.N. E.N. E.N. E.N. E.N. E.N. E.N. E.N.

CMA/CPA origin

3A-1

Appendix 3A, The Predetermined Overhead Rate and Capacity

D1 6/27/2007 App3A Problem E1 6/27/2007 App3A Problem F1

25 26

Problem Problem

M M

x x

E.N. E.N.

3A-2

Appendix 3A, The Predetermined Overhead Rate and Capacity

True / False Questions 1. If the predetermined overhead rate is based on the estimated total amount of the allocation base at capacity, it is more likely that overhead will be overapplied than underapplied. True False

Multiple Choice Questions 2. The management of Baggerly 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 81,000 machine-hours. In addition, capacity is 95,000 machine-hours and the actual level of activity for the year is 84,900 machine-hours. All of the manufacturing overhead is fixed and is $6,617,700 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? A. $318,630 Overapplied B. $703,566 Underapplied C. $703,566 Overapplied D. $318,630 Underapplied

3A-3

Appendix 3A, The Predetermined Overhead Rate and Capacity

3. The management of Mcneff 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.

If the company bases its predetermined overhead rate on capacity, by how much was manufacturing overhead underapplied or overapplied? A. $27,144 Underapplied B. $353,808 Underapplied C. $27,144 Overapplied D. $353,808 Overapplied

The management of Wymer 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 50,000 machine-hours. In addition, capacity is 59,000 machine-hours and the actual level of activity for the year is 53,300 machine-hours. All of the manufacturing overhead is fixed and is $1,622,500 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. A number of jobs were worked on during the year, one of which was Job J44V. This job required 230 machinehours.

4. If the company bases its predetermined overhead rate on the estimated amount of the allocation base for the upcoming year, the predetermined overhead rate is closest to: A. $30.38 B. $30.44 C. $27.50 D. $32.45

3A-4

Appendix 3A, The Predetermined Overhead Rate and Capacity

5. If the company bases its predetermined overhead rate on the estimated amount of the allocation base for the upcoming year the amount of manufacturing overhead charged to the Job J44V is closest to: A. $6,325.00 B. $7,463.50 C. $7,001.41 D. $6,988.30

6. If the company bases its predetermined overhead rate on the estimated amount of the allocation base for the upcoming year, by how much was manufacturing overhead underapplied or overapplied? A. $156,750 Overapplied B. $107,085 Overapplied C. $107,085 Underapplied D. $156,750 Underapplied

7. If the company bases its predetermined overhead rate on capacity, the predetermined overhead rate is closest to: A. $32.45 B. $27.50 C. $30.44 D. $30.38

8. If the company bases its predetermined overhead rate on capacity, the amount of manufacturing overhead charged to the job J44V is closest to: A. $6,988.30 B. $6,325.00 C. $7,001.41 D. $6,785.00

3A-5

Appendix 3A, The Predetermined Overhead Rate and Capacity

9. If the company bases its predetermined overhead rate on capacity, by how much was manufacturing overhead underapplied or overapplied? A. $107,085 Overapplied B. $156,750 Overapplied C. $156,750 Underapplied D. $107,085 Underapplied

The management of Haigler 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 64,000 machine-hours. In addition, capacity is 80,000 machine-hours and the actual level of activity for the year is 66,300 machine-hours. All of the manufacturing overhead is fixed and is $3,788,800 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. It is further assumed that this is also the actual amount of manufacturing overhead for the year.

10. If the company bases its predetermined overhead rate on the estimated amount of the allocation base for the upcoming year, the predetermined overhead rate is closest to: A. $59.20 B. $47.36 C. $57.15 D. $53.82

11. If the company bases its predetermined overhead rate on the estimated amount of the allocation base for the upcoming year, by how much was manufacturing overhead underapplied or overapplied? A. $648,832 Overapplied B. $648,832 Underapplied C. $136,160 Overapplied D. $136,160 Underapplied

3A-6

Appendix 3A, The Predetermined Overhead Rate and Capacity

12. If the company bases its predetermined overhead rate on capacity, the predetermined overhead rate is closest to: A. $47.36 B. $53.82 C. $59.20 D. $57.15

13. If the company bases its predetermined overhead rate on capacity, by how much was manufacturing overhead underapplied or overapplied? A. $648,832 Underapplied B. $136,160 Underapplied C. $648,832 Overapplied D. $136,160 Overapplied

The management of Crapser 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 58,000 machine-hours. In addition, capacity is 67,000 machine-hours and the actual level of activity for the year is 59,000 machine-hours. All of the manufacturing overhead is fixed and is $2,098,440 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.

14. If the company bases its predetermined overhead rate on the estimated amount of the allocation base for the upcoming year, by how much was manufacturing overhead underapplied or overapplied? A. $36,180 Overapplied B. $250,560 Overapplied C. $36,180 Underapplied D. $250,560 Underapplied

3A-7

Appendix 3A, The Predetermined Overhead Rate and Capacity

15. If the company bases its predetermined overhead rate on capacity, by how much was manufacturing overhead underapplied or overapplied? A. $250,560 Underapplied B. $36,180 Underapplied C. $250,560 Overapplied D. $36,180 Overapplied

The management of Pundt 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 15,000 machine-hours. In addition, capacity is 19,000 machine-hours and the actual level of activity for the year is 15,100 machine-hours. All of the manufacturing overhead is fixed and is $45,600 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. A number of jobs were worked on during the year, one of which was Job K41P. This job required 140 machinehours.

16. If the company bases its predetermined overhead rate on capacity, the predetermined overhead rate is closest to: A. $2.40 B. $3.02 C. $3.04 D. $2.78

17. If the company bases its predetermined overhead rate on capacity, the amount of manufacturing overhead charged to the job K41P is closest to: A. $336.00 B. $422.78 C. $389.27 D. $399.00

3A-8

Appendix 3A, The Predetermined Overhead Rate and Capacity

18. If the company bases its predetermined overhead rate on capacity, by how much was manufacturing overhead underapplied or overapplied? A. $304 Overapplied B. $9,360 Underapplied C. $9,360 Overapplied D. $304 Underapplied

The management of Bauza 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 12,000 machine-hours. In addition, capacity is 14,000 machine-hours and the actual level of activity for the year is 11,400 machine-hours. All of the manufacturing overhead is fixed and is $20,160 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.

19. If the company bases its predetermined overhead rate on capacity, the predetermined overhead rate is closest to: A. $1.68 B. $1.71 C. $1.44 D. $1.77

20. If the company bases its predetermined overhead rate on capacity, by how much was manufacturing overhead underapplied or overapplied? A. $1,008 Overapplied B. $1,008 Underapplied C. $3,744 Overapplied D. $3,744 Underapplied

3A-9

Appendix 3A, The Predetermined Overhead Rate and Capacity

Essay Questions 21. The management of Rathburn 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 machinehours and the estimated amount of the allocation base for the upcoming year is 43,000 machine-hours. In addition, capacity is 47,000 machine-hours and the actual activity for the year is 42,600 machine-hours. All of the manufacturing overhead is fixed and is $848,820 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. Job F31I, which required 310 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 F31I if the predetermined overhead rate is based on estimated amount of the allocation base. c. Determine the underapplied or overapplied 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 F31I if the predetermined overhead rate is based on the amount of the allocation base at capacity. f. 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.

3A-10

Appendix 3A, The Predetermined Overhead Rate and Capacity

22. The management of Sharrar 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 45,000 machine-hours. In addition, capacity is 52,000 machine-hours and the actual activity for the year is 47,100 machine-hours. All of the manufacturing overhead is fixed and is $1,029,600 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 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 overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

3A-11

Appendix 3A, The Predetermined Overhead Rate and Capacity

23. The management of Polcyn 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 71,000 machine-hours. In addition, capacity is 86,000 machine-hours and the actual activity for the year is 64,100 machine-hours. All of the manufacturing overhead is fixed and is $4,579,500 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 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 overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

3A-12

Appendix 3A, The Predetermined Overhead Rate and Capacity

24. The management of Hendren 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 machinehours and the estimated amount of the allocation base for the upcoming year is 10,000 machine-hours. In addition, capacity is 12,000 machine-hours and the actual activity for the year is 10,100 machine-hours. All of the manufacturing overhead is fixed and is $12,000 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 A76W, which required 420 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 A76W if the predetermined overhead rate is based on the amount of the allocation base at capacity. c. 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.

3A-13

Appendix 3A, The Predetermined Overhead Rate and Capacity

25. The management of Cius 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 84,000 machine-hours. In addition, capacity is 91,000 machine-hours and the actual activity for the year is 82,200 machine-hours. All of the manufacturing overhead is fixed and is $5,962,320 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 overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

3A-14

Appendix 3A, The Predetermined Overhead Rate and Capacity

26. The management of Amacker 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 machinehours 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. Required: 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.

3A-15

Appendix 3A, The Predetermined Overhead Rate and Capacity Key

True / False Questions 1. If the predetermined overhead rate is based on the estimated total amount of the allocation base at capacity, it is more likely that overhead will be overapplied than underapplied. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

3A-16

Appendix 3A, The Predetermined Overhead Rate and Capacity Key

Multiple Choice Questions 2. The management of Baggerly 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 81,000 machine-hours. In addition, capacity is 95,000 machine-hours and the actual level of activity for the year is 84,900 machine-hours. All of the manufacturing overhead is fixed and is $6,617,700 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? A. $318,630 Overapplied B. $703,566 Underapplied C. $703,566 Overapplied D. $318,630 Underapplied

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

3A-17

Appendix 3A, The Predetermined Overhead Rate and Capacity Key

3. The management of Mcneff 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.

If the company bases its predetermined overhead rate on capacity, by how much was manufacturing overhead underapplied or overapplied? A. $27,144 Underapplied B. $353,808 Underapplied C. $27,144 Overapplied D. $353,808 Overapplied

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

3A-18

Appendix 3A, The Predetermined Overhead Rate and Capacity Key

The management of Wymer 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 50,000 machine-hours. In addition, capacity is 59,000 machine-hours and the actual level of activity for the year is 53,300 machine-hours. All of the manufacturing overhead is fixed and is $1,622,500 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. A number of jobs were worked on during the year, one of which was Job J44V. This job required 230 machinehours.

4. If the company bases its predetermined overhead rate on the estimated amount of the allocation base for the upcoming year, the predetermined overhead rate is closest to: A. $30.38 B. $30.44 C. $27.50 D. $32.45

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

3A-19

Appendix 3A, The Predetermined Overhead Rate and Capacity Key

5. If the company bases its predetermined overhead rate on the estimated amount of the allocation base for the upcoming year the amount of manufacturing overhead charged to the Job J44V is closest to: A. $6,325.00 B. $7,463.50 C. $7,001.41 D. $6,988.30

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

3A-20

Appendix 3A, The Predetermined Overhead Rate and Capacity Key

6. If the company bases its predetermined overhead rate on the estimated amount of the allocation base for the upcoming year, by how much was manufacturing overhead underapplied or overapplied? A. $156,750 Overapplied B. $107,085 Overapplied C. $107,085 Underapplied D. $156,750 Underapplied

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

7. If the company bases its predetermined overhead rate on capacity, the predetermined overhead rate is closest to: A. $32.45 B. $27.50 C. $30.44 D. $30.38

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

3A-21

Appendix 3A, The Predetermined Overhead Rate and Capacity Key

8. If the company bases its predetermined overhead rate on capacity, the amount of manufacturing overhead charged to the job J44V is closest to: A. $6,988.30 B. $6,325.00 C. $7,001.41 D. $6,785.00

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

3A-22

Appendix 3A, The Predetermined Overhead Rate and Capacity Key

9. If the company bases its predetermined overhead rate on capacity, by how much was manufacturing overhead underapplied or overapplied? A. $107,085 Overapplied B. $156,750 Overapplied C. $156,750 Underapplied D. $107,085 Underapplied

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

3A-23

Appendix 3A, The Predetermined Overhead Rate and Capacity Key

The management of Haigler 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 64,000 machine-hours. In addition, capacity is 80,000 machine-hours and the actual level of activity for the year is 66,300 machine-hours. All of the manufacturing overhead is fixed and is $3,788,800 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. It is further assumed that this is also the actual amount of manufacturing overhead for the year.

10. If the company bases its predetermined overhead rate on the estimated amount of the allocation base for the upcoming year, the predetermined overhead rate is closest to: A. $59.20 B. $47.36 C. $57.15 D. $53.82

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

3A-24

Appendix 3A, The Predetermined Overhead Rate and Capacity Key

11. If the company bases its predetermined overhead rate on the estimated amount of the allocation base for the upcoming year, by how much was manufacturing overhead underapplied or overapplied? A. $648,832 Overapplied B. $648,832 Underapplied C. $136,160 Overapplied D. $136,160 Underapplied

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

12. If the company bases its predetermined overhead rate on capacity, the predetermined overhead rate is closest to: A. $47.36 B. $53.82 C. $59.20 D. $57.15

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

3A-25

Appendix 3A, The Predetermined Overhead Rate and Capacity Key

13. If the company bases its predetermined overhead rate on capacity, by how much was manufacturing overhead underapplied or overapplied? A. $648,832 Underapplied B. $136,160 Underapplied C. $648,832 Overapplied D. $136,160 Overapplied

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

3A-26

Appendix 3A, The Predetermined Overhead Rate and Capacity Key

The management of Crapser 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 58,000 machine-hours. In addition, capacity is 67,000 machine-hours and the actual level of activity for the year is 59,000 machine-hours. All of the manufacturing overhead is fixed and is $2,098,440 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.

14. If the company bases its predetermined overhead rate on the estimated amount of the allocation base for the upcoming year, by how much was manufacturing overhead underapplied or overapplied? A. $36,180 Overapplied B. $250,560 Overapplied C. $36,180 Underapplied D. $250,560 Underapplied

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

3A-27

Appendix 3A, The Predetermined Overhead Rate and Capacity Key

15. If the company bases its predetermined overhead rate on capacity, by how much was manufacturing overhead underapplied or overapplied? A. $250,560 Underapplied B. $36,180 Underapplied C. $250,560 Overapplied D. $36,180 Overapplied

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

3A-28

Appendix 3A, The Predetermined Overhead Rate and Capacity Key

The management of Pundt 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 15,000 machine-hours. In addition, capacity is 19,000 machine-hours and the actual level of activity for the year is 15,100 machine-hours. All of the manufacturing overhead is fixed and is $45,600 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. A number of jobs were worked on during the year, one of which was Job K41P. This job required 140 machinehours.

16. If the company bases its predetermined overhead rate on capacity, the predetermined overhead rate is closest to: A. $2.40 B. $3.02 C. $3.04 D. $2.78

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

3A-29

Appendix 3A, The Predetermined Overhead Rate and Capacity Key

17. If the company bases its predetermined overhead rate on capacity, the amount of manufacturing overhead charged to the job K41P is closest to: A. $336.00 B. $422.78 C. $389.27 D. $399.00

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

3A-30

Appendix 3A, The Predetermined Overhead Rate and Capacity Key

18. If the company bases its predetermined overhead rate on capacity, by how much was manufacturing overhead underapplied or overapplied? A. $304 Overapplied B. $9,360 Underapplied C. $9,360 Overapplied D. $304 Underapplied

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

3A-31

Appendix 3A, The Predetermined Overhead Rate and Capacity Key

The management of Bauza 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 12,000 machine-hours. In addition, capacity is 14,000 machine-hours and the actual level of activity for the year is 11,400 machine-hours. All of the manufacturing overhead is fixed and is $20,160 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.

19. If the company bases its predetermined overhead rate on capacity, the predetermined overhead rate is closest to: A. $1.68 B. $1.71 C. $1.44 D. $1.77

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

3A-32

Appendix 3A, The Predetermined Overhead Rate and Capacity Key

20. If the company bases its predetermined overhead rate on capacity, by how much was manufacturing overhead underapplied or overapplied? A. $1,008 Overapplied B. $1,008 Underapplied C. $3,744 Overapplied D. $3,744 Underapplied

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

3A-33

Appendix 3A, The Predetermined Overhead Rate and Capacity Key

Essay Questions 21. The management of Rathburn 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 machinehours and the estimated amount of the allocation base for the upcoming year is 43,000 machine-hours. In addition, capacity is 47,000 machine-hours and the actual activity for the year is 42,600 machine-hours. All of the manufacturing overhead is fixed and is $848,820 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. Job F31I, which required 310 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 F31I if the predetermined overhead rate is based on estimated amount of the allocation base. c. Determine the underapplied or overapplied 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 F31I if the predetermined overhead rate is based on the amount of the allocation base at capacity. f. 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.

3A-34

Appendix 3A, The Predetermined Overhead Rate and Capacity Key

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Appendix 3A, The Predetermined Overhead Rate and Capacity Key

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

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Appendix 3A, The Predetermined Overhead Rate and Capacity Key

22. The management of Sharrar 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 45,000 machine-hours. In addition, capacity is 52,000 machine-hours and the actual activity for the year is 47,100 machine-hours. All of the manufacturing overhead is fixed and is $1,029,600 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 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 overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

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Appendix 3A, The Predetermined Overhead Rate and Capacity Key

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

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Appendix 3A, The Predetermined Overhead Rate and Capacity Key

23. The management of Polcyn 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 71,000 machine-hours. In addition, capacity is 86,000 machine-hours and the actual activity for the year is 64,100 machine-hours. All of the manufacturing overhead is fixed and is $4,579,500 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 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 overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

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Appendix 3A, The Predetermined Overhead Rate and Capacity Key

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

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Appendix 3A, The Predetermined Overhead Rate and Capacity Key

24. The management of Hendren 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 machinehours and the estimated amount of the allocation base for the upcoming year is 10,000 machine-hours. In addition, capacity is 12,000 machine-hours and the actual activity for the year is 10,100 machine-hours. All of the manufacturing overhead is fixed and is $12,000 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 A76W, which required 420 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 A76W if the predetermined overhead rate is based on the amount of the allocation base at capacity. c. 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.

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Appendix 3A, The Predetermined Overhead Rate and Capacity Key

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

25. The management of Cius 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 84,000 machine-hours. In addition, capacity is 91,000 machine-hours and the actual activity for the year is 82,200 machine-hours. All of the manufacturing overhead is fixed and is $5,962,320 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 overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

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Appendix 3A, The Predetermined Overhead Rate and Capacity Key

26. The management of Amacker 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 machinehours 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. Required: 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.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 9 Level: Medium

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