The Management of Westrope Corporation Would Like to Investigate the Possibility

question 14

Essay

The management of Westrope 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 76,000 machine-hours. In addition, capacity is 86,000 machine-hours and the actual activity for the year is 71,000 machine-hours. All of the manufacturing overhead is fixed and is $4,771,280 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.
Required:
a. Determine the predetermined overhead rate if the predetermined overhead rate is based on the estimated amount of the allocation base.
b. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the estimated amount of the allocation base.
c. Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity.
d. 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.

---

Definitions:

Marine Mammal Protection Act

A 1972 U.S. law aimed at protecting marine mammals, prohibiting their harassment, hunting, capturing, or killing.

Rivers And Harbors Act

A United States federal law enacted in 1899, regulating the development and management of the nation's waterways to protect navigable waters and prevent obstructions.

Endangered Species Act

A U.S. law enacted in 1973 aimed at protecting species threatened with extinction.

Price Elasticity

The measure of how much the quantity demanded or supplied of a good changes in response to a change in its price.