The Management of Rainha Corporation Would Like to Investigate the Possibility

question 20

Essay

The management of Rainha 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 13,000 machine-hours.In addition,capacity is 16,000 machine-hours and the actual activity for the year is 12,900 machine-hours.All of the manufacturing overhead is fixed and is $29,120 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 manufacturing overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

---

Definitions:

Sales Response Function

A model that explains how sales volume changes in response to various marketing activities, including changes in product features, pricing, promotion, and distribution.

S-shaped Curve

A curve that depicts a scenario where growth starts slowly, accelerates, and then slows down again, often used in biology, product life cycles, and technology adoption.

Supply Chain Management

The management of the flow of goods and services from the initial production of a product through to its delivery to the end consumer.

Customer Relationship Management

A strategic approach that uses data analysis and customer interactions to improve business relationships and customer satisfaction.