The Management of Plitt Corporation Would Like to Investigate the Possibility

question 58

Multiple Choice

The management of Plitt 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 69,000 machine-hours. Capacity is 82,000 machine-hours and the actual level of activity for the year is assumed to be 72,400 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 $4,130,340 per year. It is assumed that a number of jobs were worked on during the year, one of which was Job Q20L which required 470 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) $654,810
• B) $687,076
• C) $547,669
• D) $483,552

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Definitions:

Social Partnership

Cooperative relationships between the government, employers, and labor unions designed to discuss and negotiate policies benefiting all stakeholders.

Codetermination Rights

Rights that enable workers to participate in management decisions within a company, common in some European countries.

Consultation Rights

The right to be consulted on decisions that affect one's work or employment conditions, often a provision in labor relations or company policies.

Information Rights

Pertains to the rights individuals or entities have to access information, often in the context of privacy, freedom of information, or data protection.