The Management of Featheringham Corporation Would Like to Investigate the Possibility

question 18

Multiple Choice

The management of Featheringham 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 62,000 machine-hours. Capacity is 75,000 machine-hours and the actual level of activity for the year is assumed to be 59,000 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 $2,836,500 per year. It is assumed that a number of jobs were worked on during the year, one of which was Job Z77W which required 410 machine-hours.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) $137,250
• B) $605,120
• C) $491,660
• D) $467,870

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Definitions:

Organizational Culture

The shared values, beliefs, and practices that characterize the environment and behavior within a business or organization.

Work Group

A collection of individuals who come together to achieve a specific goal or task, often collaborating and sharing responsibilities within an organizational setting.

Negative Reinforcement

A behavioral principle where the removal of an unpleasant stimulus following a specific behavior increases the likelihood of that behavior being repeated.

Employee Behavior

The actions and conduct of individuals within an organization, which can influence productivity, morale, and the work environment.