The Management of Bow Corporation Would Like to Investigate the Possibility

question 8

Multiple Choice

The management of Bow 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 54,000 machine-hours. In addition, capacity is 68,000 machine-hours and the actual level of activity for the year is 53,100 machine-hours. All of the manufacturing overhead is fixed and is $2,129,760 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 E82X. This job required 100 machine-hours.
-If the company bases its predetermined overhead rate on capacity,by how much was manufacturing overhead underapplied or overapplied?

• A)$466,668 Underapplied
• B)$466,668 Overapplied
• C)$35,496 Overapplied
• D)$35,496 Underapplied

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Definitions:

Expected Return

The anticipated profit or loss from an investment, considering all potential outcomes and their probabilities.

Real Estate Project

A planned undertaking in the property sector that involves the development, construction, or renovation of real estate properties.

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Short-term government securities issued at a discount from the par value and pay no interest, maturing in a year or less.

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