The Management of Hendren Corporation Would Like to Investigate the Possibility

question 19

Essay

The management of Hendren 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 10,000 machine-hours. In addition, capacity is 12,000 machine-hours and the actual activity for the year is 10,100 machine-hours. All of the manufacturing overhead is fixed and is $12,000 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. Job A76W, which required 420 machine-hours, is one of the jobs worked on during 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 how much overhead would be applied to Job A76W if the predetermined overhead rate is based on the amount of the allocation base at capacity.
c. Determine the underapplied or overapplied 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:

Esterifies

The process by which an ester is formed, usually from the reaction between an acid and an alcohol with the elimination of water.

Hydrolyzes

Refers to the chemical process where water is used to break down a compound, often a polymer, into smaller units.

Organic Product

A compound produced through an organic reaction, typically consisting of carbon atoms in combination with hydrogen, oxygen, nitrogen, or other elements.

Ketone

Organic compounds featuring a carbonyl group (C=O) bonded to two carbon atoms, used in solvents and in the manufacture of various chemicals.