The Management of Satellite Corporation Would Like to Investigate the Possibility

question 47

Essay

The management of Satellite 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 13,000 machine-hours. In addition, capacity is 16,000 machine-hours and the actual activity for the year is 12,900 machine-hours. All of the manufacturing overhead is fixed and is $29,120 per year. For simplicity, it is assumed that this is the estimated manufacturing overhead for the year as well as the manufacturing overhead at capacity and the actual amount of manufacturing overhead for the year.
Required:
a. Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity.
b. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

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Definitions:

Climax Community

A stable community that has reached a steady state after a succession of ecological communities have evolved and there are no further major changes.

Competitive Exclusion

The ecological principle that two species competing for the same resources cannot coexist at constant population values if other ecological factors remain constant.

Paramecium Caudatum

A species of ciliate protozoan that lives in freshwater environments and is known for its slipper-like shape.

P. Aurelia

A species of single-celled ciliate protozoa that is often studied in genetics and biology.