(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:

Analogy Method

A problem-solving strategy that draws comparisons between a current situation and another analogous situation to find a similar solution.

Idea Growers

Individuals or entities that are skilled in developing, nurturing, and bringing new concepts or innovations to fruition.

Individual Creativity

The ability of a person to generate new ideas, solutions, or approaches independently.

Strategies

Plans of action designed to achieve a major or overall aim, often involving detailed methodologies and processes.