The Management of Krach Corporation Would Like to Investigate the Possibility

question 137

Multiple Choice

The management of Krach 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 10,000 machine-hours. Capacity is 16,000 machine-hours and the actual level of activity for the year is assumed to be 8,000 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 $40,000 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. 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, what would be the cost of unused capacity reported on the income statement prepared for internal management purposes?

• A) $6,000
• B) $20,000
• C) $5,000
• D) $25,000

Identify industries with high employment potential.

Acknowledge the benefits of having a mentor in career development.

Develop an understanding of the factors influencing employment opportunities and career planning.

Understand the concept and implications of inflation in an economy.

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Definitions:

Financial Reporting

The act of creating declarations that unveil a corporation's economic situation to its executives, shareholders, and regulatory agencies.

Period Costs

Expenses that are not directly tied to the production of goods and are instead charged to expense accounts in the period they are incurred.

Financial Reporting

The method of generating reports that reveal the financial condition of a company to its management, investors, and governmental bodies.

Conversion Cost

The total expense of converting raw materials into finished goods, including both direct labor and manufacturing overhead.