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

question 16

Essay

(Appendix 4B)The management of Shastri 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 69, 000 machine-hours.In addition, capacity is 76, 000 machine-hours and the actual activity for the year is 71, 600 machine-hours.All of the manufacturing overhead is fixed and is $3, 461, 040 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.Job Z67J, which required 330 machine-hours, is one of the jobs worked on during the year.
Required:
a.Determine the predetermined overhead rate if the predetermined overhead rate is based on the estimated amount of the allocation base.
b.Determine how much overhead would be applied to Job Z67J if the predetermined overhead rate is based on estimated amount of the allocation base.
c.Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the estimated amount of the allocation base.
d.Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity.
e.Determine how much overhead would be applied to Job Z67J if the predetermined overhead rate is based on the amount of the allocation base at capacity.
f.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:

Present Value

The present valuation of a future financial sum or cash flow series, factoring in a specific return rate.

Compound Interest

Interest earned on both the initial principal and the accumulated interest from previous periods on a deposit or loan.

Bond

A financial instrument in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period at a specified interest rate.

Semiannual Interest

Interest that is calculated and paid twice a year, typically used in the context of bonds and loans.