(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:

Goal Setting

The process of identifying specific objectives, determining strategies for achieving those objectives, and measuring progress towards them.

Getting Education

The process of receiving formal instruction or training in a variety of settings such as schools, colleges, or universities.

Specific Assignment

A particular task or duty assigned to a person or group as part of their responsibilities.

Zeigarnik Effect

The tendency to remember uncompleted or interrupted tasks better than completed tasks.