the management of chaloux corporation would like to investigate the possibility of basing its predetermined…

the management of chaloux corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity. the corporations controller has provided an example to illustrate how this new system would work. in this example, the allocation base is machine - hours.\n\nmachine - hours.....................: estimated at the beginning of the year 17,000, capacity 21,000, actual 17,400\nmanufacturing overhead...........: estimated at the beginning of the year $57,120, capacity $57,120, actual $57,120\n\nif the corporation bases its predetermined overhead rate on capacity, by how much was manufacturing overhead underapplied or overapplied?\n\na) $9,792 overapplied\nb) $9,792 underapplied\nc) $1,344 underapplied\nd) $1,344 overapplied

the management of chaloux corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity. the corporations controller has provided an example to illustrate how this new system would work. in this example, the allocation base is machine - hours.\n\nmachine - hours.....................: estimated at the beginning of the year 17,000, capacity 21,000, actual 17,400\nmanufacturing overhead...........: estimated at the beginning of the year $57,120, capacity $57,120, actual $57,120\n\nif the corporation bases its predetermined overhead rate on capacity, by how much was manufacturing overhead underapplied or overapplied?\n\na) $9,792 overapplied\nb) $9,792 underapplied\nc) $1,344 underapplied\nd) $1,344 overapplied

Answer

Explanation:

Step1: Calculate the predetermined overhead rate

The formula for the predetermined overhead rate based on capacity is ( \text{Predetermined overhead rate}=\frac{\text{Manufacturing overhead at capacity}}{\text{Machine - hours at capacity}} ). Given that manufacturing overhead at capacity is ( $57,120 ) and machine - hours at capacity is ( 21,000 ). So, ( \text{Predetermined overhead rate}=\frac{57120}{21000}=$2.72) per machine - hour.

Step2: Calculate the applied manufacturing overhead

The formula for applied manufacturing overhead is ( \text{Applied manufacturing overhead}=\text{Predetermined overhead rate}\times\text{Actual machine - hours} ). Actual machine - hours is ( 17,400 ) and the predetermined overhead rate is ( $2.72) per machine - hour. So, ( \text{Applied manufacturing overhead}=2.72\times17400 = $47,328).

Step3: Calculate the under - applied or over - applied manufacturing overhead

The formula is ( \text{Under - applied or over - applied}=\text{Actual manufacturing overhead}-\text{Applied manufacturing overhead} ). Actual manufacturing overhead is ( $57,120). So, ( \text{Under - applied or over - applied}=57120 - 47328=$9,792) under - applied (since actual overhead (>) applied overhead).

Answer:

B) ( $9,792 ) underapplied