The Management of Haigler Corporation Would Like to Investigate the Possibility

question 21

Multiple Choice

The management of Haigler 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 64,000 machine-hours. In addition, capacity is 80,000 machine-hours and the actual level of activity for the year is 66,300 machine-hours. All of the manufacturing overhead is fixed and is $3,788,800 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 the estimated amount of the allocation base for the upcoming year, by how much was manufacturing overhead underapplied or overapplied?

• A) $648,832 Overapplied
• B) $648,832 Underapplied
• C) $136,160 Overapplied
• D) $136,160 Underapplied

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Definitions:

Cooperative Outcomes

Results of collaborative efforts among various parties that are mutually beneficial and aim towards shared goals or interests.

Payoff Matrix

A table that displays the potential outcomes or rewards for different actions taken by players in a strategic game.

Nash Equilibrium

A concept within game theory where no participant can gain by unilaterally changing their strategy if the strategies of the other participants remain unchanged.

Elastic Demand

A situation where the demand for a good or service significantly changes in response to changes in price.