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

question 7

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, by how much was manufacturing overhead underapplied or overapplied?

• A)$35, 802 Underapplied
• B)$7, 722 Underapplied
• C)$35, 802 Overapplied
• D)$7, 722 Overapplied

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Definitions:

Accounting Period

A specific time period at the end of which an organization prepares financial statements, commonly a year, quarter, or month.

Adjust

To make modifications to records, accounts, or systems to correct discrepancies or align them with actual conditions.

Accumulated Depreciation

The total amount of depreciation expense that has been recorded on an asset since its purchase.

Depreciation Expense

The systematic allocation of the cost of a tangible asset over its useful life, representing wear and tear, decay, or obsolescence.