(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:

Income Levels

The categories of earnings that individuals or households fall into, typically used to analyze economic and demographic data.

Tax Incidence

The study of who ultimately pays the tax or bears the burden of tax, which can differ from the entity that initially pays the tax.

Total Burden

The complete impact, often in terms of costs or taxes, borne by society or specific groups within it.

Consumer Surplus

The disparity between what consumers are prepared and able to spend for a product or service and the actual amount they end up paying.