The Management of Wymer Corporation Would Like to Investigate the Possibility

question 6

Multiple Choice

The management of Wymer 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 50,000 machine-hours. In addition, capacity is 59,000 machine-hours and the actual level of activity for the year is 53,300 machine-hours. All of the manufacturing overhead is fixed and is $1,622,500 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 J44V. This job required 230 machine-hours.
-If the company bases its predetermined overhead rate on capacity, by how much was manufacturing overhead underapplied or overapplied?

• A) $107,085 Overapplied
• B) $156,750 Overapplied
• C) $156,750 Underapplied
• D) $107,085 Underapplied

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Definitions:

Alarm

A sudden fear or concern caused by the realization of danger or an emergency situation.

Type A Personality

A temperament characterized by high levels of competitiveness, self-imposed stress, impatience, and aggressiveness.

Emotion-Focused Coping

A type of coping in which people try to prevent having an emotional response to a stressor.

Hardiness

A personality characteristic that involves a sense of control, commitment, and the ability to embrace challenge as an opportunity for growth.