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

question 22

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 the estimated amount of the allocation base for the upcoming year, the predetermined overhead rate is closest to:

• A)$19.68
• B)$19.27
• C)$19.14
• D)$17.63

Approach subjectively estimated cash flows with caution, incorporating conservative and reasonable estimates.

Understand the principles of capital budgeting decisions.

Identify and calculate relevant and irrelevant cash flows in capital budgeting.

Understand and apply depreciation methods including Modified Accelerated Cost Recovery System (MACRS) for tax purposes.

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Definitions:

Impaired Asset

An asset that has a market value significantly below its carrying amount on the balance sheet, indicating that recoverable amount is less than its book value, necessitating a write-down.

Depreciation Expense

The monetary value reduction in an asset's cost over its useful life due to wear and tear, age, or obsolescence.

Book Value

The net value of an asset according to its balance sheet account balance, calculated as the original cost minus accumulated depreciation.

Impairment Loss

The amount by which the carrying amount of an asset or a cash-generating unit exceeds its recoverable amount.