The Management of Baggerly Corporation Would Like to Investigate the Possibility

question 11

Multiple Choice

The management of Baggerly 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 81,000 machine-hours. In addition, capacity is 95,000 machine-hours and the actual level of activity for the year is 84,900 machine-hours. All of the manufacturing overhead is fixed and is $6,617,700 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. If the company bases its predetermined overhead rate on capacity, by how much was manufacturing overhead underapplied or overapplied?

• A) $318,630 Overapplied
• B) $703,566 Underapplied
• C) $703,566 Overapplied
• D) $318,630 Underapplied

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Definitions:

Perfected

A legal term indicating that an interest or lien on a property has been legally completed and registered, making it enforceable against third parties.

Goods

Tangible personal property, which includes physical items that can be seen, touched, and possessed.

Conflicting Interests

Situations where competing priorities or obligations cause a conflict for an individual or organization, potentially leading to ethical dilemmas.

Perfected

In legal terms, it refers to a state where an interest (such as a lien or security interest) is made legally enforceable and established in a manner that it has priority over the claims of others.