The Management of Holdaway Corporation Would Like to Investigate the Possibility

question 248

Multiple Choice

The management of Holdaway 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 71,100 machine-hours. Capacity is 80,100 machine-hours and the actual level of activity for the year is assumed to be 67,000 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 $5,701,518 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) $80.19 per machine-hour
• B) $78.00 per machine-hour
• C) $85.10 per machine-hour
• D) $71.18 per machine-hour

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Definitions:

Continuous Improvement

A relentless pursuit to better products, services, or processes with both minor and radical upgrades.

Quality Circle

A group of workers who voluntarily meet to discuss and suggest improvements in work processes, typically within a manufacturing context.

Creative Potential

The capacity or ability to generate innovative ideas and solutions.

Internal Customers

Individuals or departments within an organization that receive services or products from other parts of the company as part of the internal process.