The Management of Foy Corporation Would Like to Investigate the Possibility

question 27

Multiple Choice

The management of Foy 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 86,000 machine-hours. In addition, capacity is 94,000 machine-hours and the actual level of activity for the year is 88,200 machine-hours. All of the manufacturing overhead is fixed and is $6,790,560 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. It is further assumed that this is also the actual amount of manufacturing overhead for the year.
-If the company bases its predetermined overhead rate on the estimated amount of the allocation base for the upcoming year,by how much was manufacturing overhead underapplied or overapplied?

• A)$418,992 Overapplied
• B)$173,712 Underapplied
• C)$418,992 Underapplied
• D)$173,712 Overapplied

Recognize the significance of executive summaries in business plans and their components.

Understand the characteristics and motivations of various types of entrepreneurs.

Grasp the role of creativity, initiative, and strategic risk-taking in entrepreneurship.

Understand the significance of funding sources, such as angel investors and venture capitalists, in the startup and growth phases of entrepreneurial ventures.

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Definitions:

Direct Labor Dollars

The total amount of money paid to workers who are directly involved in manufacturing a product or delivering a service.

Manufacturing Overhead-Applied

The portion of manufacturing costs not directly associated with the production of goods that are assigned to units produced.

Overhead-Applied Account

Refers to an account where the applied (estimated) manufacturing overhead costs are accumulated.

Application of Overhead

The application of overhead involves allocating manufacturing overhead costs to produced goods based on a predetermined formula or rate.