(Appendix 4B)The Management of Aamot Corporation Would Like to Investigate

question 18

Multiple Choice

(Appendix 4B) The management of Aamot 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 43, 000 machine-hours.In addition, capacity is 47, 000 machine-hours and the actual level of activity for the year is 42, 100 machine-hours.All of the manufacturing overhead is fixed and is $828, 610 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 capacity, by how much was manufacturing overhead underapplied or overapplied?

• A)$17, 343 Overapplied
• B)$17, 343 Underapplied
• C)$86, 387 Overapplied
• D)$86, 387 Underapplied

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Definitions:

Chose in Action

A legal term for a personal right to something not in one's possession but recoverable by legal means, such as debts or securities.

CEPA

Canadian Environmental Protection Act, a legislative framework for protecting the Canadian environment and human health by preventing pollution and managing chemicals.

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An arbitration agreement where the decision made by the arbitrator is legally binding and enforceable, similarly to a court judgment.