The Cavy Company Estimates That the Factory Overhead for the Following

question 137

Multiple Choice

The Cavy Company estimates that the factory overhead for the following year will be $1,250,000. The company has decided that the basis for applying factory overhead should be machine hours, which is estimated to be 40,000 hours. The machine hours for the month of April for all of the jobs was 4,780. If the actual factory overhead totaled $141,800, determine the over or under applied amount for the month.

• A) $7,575 underapplied
• B) $35,220 underapplied
• C) $7,575 overapplied
• D) $35,220 overapplied

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Definitions:

WACC

Weighted Average Cost of Capital, a calculation that reflects the average rate that a company is expected to pay on its securities, taking into account debt and equity.

Target Capital Structure

The mix of debt, equity, and other securities that a company aims to hold in order to finance its assets and operations ideally.

Flotation Costs

Expenses associated with issuing new securities, including legal, underwriting, and registration fees.

Effective Tax Rate

The average percentage of one's total income paid in taxes, factoring in all deductions and credits.