(Appendix 2B) the Management of Featheringham Corporation Would Like to Investigate

question 23

Multiple Choice

(Appendix 2B) 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:

Refinancing

The process of replacing an existing loan with a new loan that usually has better terms, such as a lower interest rate.

FASB

Financial Accounting Standards Board, an organization responsible for setting accounting and financial reporting standards in the United States.

IFRS

International Financial Reporting Standards, a set of accounting standards that provide guidelines for financial reporting, aiming to make company accounts understandable and comparable across international boundaries.

GAAP

In any particular legal area, the Generally Accepted Accounting Principles are the recognized standard of guidelines for conducting financial accounting.