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

question 2

Multiple Choice

(Appendix 4B) The management of Cordona 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 27, 000 machine-hours.In addition, capacity is 33, 000 machine-hours and the actual level of activity for the year is 27, 900 machine-hours.All of the manufacturing overhead is fixed and is $231, 660 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.A number of jobs were worked on during the year, one of which was Job I86N.This job required 370 machine-hours. If the company bases its predetermined overhead rate on capacity, the predetermined overhead rate is closest to:

Definitions:

AGI

Adjusted Gross Income is a measure of income calculated from your gross income and used to determine how much of your income is taxable.

Long-term Capital Losses

Financial losses realized from the sale of assets held for more than a year, which can be used to offset capital gains for tax purposes.

Short-term Capital Gains

Profits from the sale of an asset held for a year or less, typically taxed at higher rates than long-term capital gains.

Section 1202

A provision in the U.S. tax code offering exclusion on gains from the sale or exchange of qualified small business stock held for more than 5 years.