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:

Surround Sound Stereo

A system of audio amplification that enhances the depth and quality of sound reproduction by using multiple speakers around the listener.

Interest Rate

An interest rate is the percentage of principal charged by the lender for the use of its money or the rate earned on deposits.

Annual Interest Rate

The percentage of principal earned as interest on an investment or paid on a loan over a one-year period.

Down Payment

An initial, upfront partial payment for the purchase of expensive items/services, typically associated with real estate or vehicles.