The Management of Bullinger Corporation Would Like to Investigate the Possibility

question 32

Multiple Choice

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 capacity, then the predetermined overhead rate is closest to:

• A) $1.54 per machine-hour
• B) $1.32 per machine-hour
• C) $1.49 per machine-hour
• D) $0.99 per machine-hour

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Definitions:

Straight-Line Depreciation

A plan for parceling out the expense of a physical asset throughout its active life in uniform yearly amounts.

Cost-Cutting

The process of reducing operating expenses within a business to improve profitability.

Revenue-Generating

Activities or endeavors that result in the inflow of money to an organization, typically from the sale of goods or services.

Opportunity Cost

The expenditure of bypassing the closest optimal alternative in the decision-making process.