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

question 15

Multiple Choice

(Appendix 4B) The management of Wray 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 68, 000 machine-hours.In addition, capacity is 79, 000 machine-hours and the actual level of activity for the year is 63, 500 machine-hours.All of the manufacturing overhead is fixed and is $3, 384, 360 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?

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Definitions:

Profound Knowledge

Deep and comprehensive understanding in a particular field or subject, often driving innovative solutions or strategic insight.

Edwards Deming

An influential American engineer, statistician, and management consultant known for his work in quality management and improvement.

Real Processes

The actual procedures and tasks carried out to accomplish a specific goal in an organization, distinct from theoretical or idealized procedures.

Walter Shewhart

A statistician known for his work in quality control and the development of the control chart technique.