The Management of Niemeyer Corporation Would Like to Investigate the Possibility

question 15

Essay

The management of Niemeyer 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 70,000 machine-hours.In addition,capacity is 82,000 machine-hours and the actual activity for the year is 72,900 machine-hours.All of the manufacturing overhead is fixed and is $4,132,800 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.Job O65A,which required 300 machine-hours,is one of the jobs worked on during 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 how much overhead would be applied to Job O65A if the predetermined overhead rate is based on the amount of the allocation base at capacity.
c.Determine the underapplied or overapplied manufacturing 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:

Subjective Opinions

Personal views or judgments influenced by individual preferences, feelings, or experiences, rather than by external facts or evidence.

Qualitative Differences

Distinctions that are based on the qualities or characteristics of things, rather than on quantity or numerical measures.

Utilitarianism

The moral philosophy that says that we should act in such ways as to provide the greatest good (understood as happiness or pleasure) for the greatest number of people as we possibly can.

Self-Interest

The concern for one's own advantage and well-being, often driving human behavior and decision-making.