The Management of Schneiter Corporation Would Like to Investigate the Possibility

question 392

Essay

The management of Schneiter Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated amount of activity for the year. 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 42,000 machine-hours. In addition, capacity is 46,000 machine-hours and the actual activity for the year is 43,000 machine-hours. All of the manufacturing overhead is fixed and is $734,160 per year.Required:a. Determine the predetermined overhead rate if the predetermined overhead rate is based on activity at capacity.b. Determine the cost of unused capacity for the year if the predetermined overhead rate is based on activity at capacity.

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Definitions:

Relative Percentages

A statistical measure that represents a portion of a whole as a percentage relative to another quantity.

Price Inelastic

A characteristic of goods for which demand does not significantly change with a change in price.

Demand

The desire and ability of consumers to purchase goods and services at different prices, reflecting the relationship between price levels and quantity demanded.

Rising Health Care Costs

The increasing expense associated with medical services and products, affecting individuals, families, businesses, and governments.