Karvel Corporation Uses a Predetermined Overhead Rate Based on Machine-Hours

question 160

Multiple Choice

Karvel Corporation uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to jobs. For the month of August, Karvel estimated total manufacturing overhead costs at $300,000 and total machine-hours at 75,000 hours. Actual results for the period were manufacturing overhead costs of $290,000 and 75,000 machine-hours. As a result, Karvel would have:

• A) applied more overhead to Work in Process than the actual amount of overhead cost for the year.
• B) applied less overhead to Work in Process than the actual amount of overhead cost for the year.
• C) applied an amount of overhead to Work in Process that was equal to the actual amount of overhead.
• D) found it necessary to recalculate the predetermined overhead rate.

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Definitions:

Ordinary Annuity

A series of equal payments made at regular intervals over a specified period of time.

Nominal Interest

The interest rate stated on a loan or investment agreement before the adjustment for inflation.

Effective Rate

The effective rate is the actual interest rate on an investment or loan, taking into account the compounding of interest, as opposed to the nominal or stated rate.

Compounding Interval

The frequency at which interest is added to the principal of a deposit or loan, influencing the total interest earned or paid.