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

question 21

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, the amount of manufacturing overhead charged to job I86N is closest to:

• A)$3, 072.19
• B)$3, 296.70
• C)$2, 597.40
• D)$3, 234.50

---

Definitions:

Performance Measurement Systems

Tools and systems used to monitor and assess the performance of an organization against its objectives, often encompassing multiple performance indicators.

Current Performance

An assessment of the present operational, financial, or market status of an entity, often used to gauge its short-term success or effectiveness.

Material Price Variances

The difference between the actual cost of direct materials and the standard cost, multiplied by the quantity of materials purchased.

Purchasing Department

A division within a company that is responsible for procuring goods and services necessary for the company’s operations.