The Management of Bauza Corporation Would Like to Investigate the Possibility

question 22

Multiple Choice

The management of Bauza 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 12,000 machine-hours. In addition, capacity is 14,000 machine-hours and the actual level of activity for the year is 11,400 machine-hours. All of the manufacturing overhead is fixed and is $20,160 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) $1,008 Overapplied
• B) $1,008 Underapplied
• C) $3,744 Overapplied
• D) $3,744 Underapplied

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Definitions:

QAM

An abbreviation for "Quaque Ante Meridiem," a Latin term used in prescriptions to indicate medication should be taken every morning.

D/C

Commonly used abbreviation for "discharge" or "discontinue" in medical context, indicating the end of hospital stay or stopping of a treatment.

EENT

Acronym for Eyes, Ears, Nose, and Throat, a commonly used term in the medical field to refer to these specific areas collectively.

Suppository

A form of medication designed to be inserted into the rectum, vagina, or urethra, where it dissolves.