The Management of Rathburn Corporation Would Like to Investigate the Possibility

question 13

Essay

The management of Rathburn 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 43,000 machine-hours. In addition, capacity is 47,000 machine-hours and the actual activity for the year is 42,600 machine-hours. All of the manufacturing overhead is fixed and is $848,820 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 F31I, which required 310 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 estimated amount of the allocation base.
b. Determine how much overhead would be applied to Job F31I if the predetermined overhead rate is based on estimated amount of the allocation base.
c. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the estimated amount of the allocation base.
d. Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity.
e. Determine how much overhead would be applied to Job F31I if the predetermined overhead rate is based on the amount of the allocation base at capacity.
f. 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:

Shift Right

In economics, a term used to describe the movement of a supply or demand curve to the right, indicating an increase in supply or demand.

Decreases in Value

A reduction in the worth or price of an asset or commodity.

Foreign Currencies

Money or other forms of legal tender issued by countries other than one's own, used in international trade and finance transactions.