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

question 4

Essay

(Appendix 4B)The management of Hannan 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 12, 000 machine-hours.In addition, capacity is 15, 000 machine-hours and the actual activity for the year is 12, 100 machine-hours.All of the manufacturing overhead is fixed and is $21, 600 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.
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 the underapplied or overapplied 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:

Joseph Brant

A Mohawk military and political leader who played a significant role during the American Revolutionary War, aligning with the British against American settlers.

Loyalists

Colonists in America who remained loyal to the British Crown before and during the American Revolutionary War, opposing the revolution.

Independence

The state of being self-governing and autonomous, free from external control.

British Monarchy

The constitutional monarchy ruling over the United Kingdom and its overseas territories, with a history that stretches back over a thousand years.