The Management of Scurlock Corporation Would Like to Investigate the Possibility

question 18

Essay

The management of Scurlock 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 19,000 machine-hours.In addition,capacity is 21,000 machine-hours and the actual activity for the year is 18,200 machine-hours.All of the manufacturing overhead is fixed and is $71,820 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 estimated amount of the allocation base.
b.Determine the underapplied or overapplied manufacturing overhead for the year if the predetermined overhead rate is based on the estimated amount of the allocation base.
c.Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity.
d.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.

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Definitions:

Allowance for Doubtful Accounts

An account that offsets assets, specifically designed to anticipate the part of accounts receivable that might be uncollectible.

Aging Method

A technique used in accounting to estimate uncollectible accounts receivable by categorizing them based on the length of time they have been outstanding.

Allowance for Doubtful Accounts

A contra-asset account used to reduce the total receivables reported to reflect only the amounts expected to be collected.

Bad Debts Expense

Bad debts expense represents the loss that a company anticipates or realizes from customers who are unable to pay their outstanding balances.