Question

Submit 2&3 Quiz Help Save & Exit The management of Winterroth Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity. The Corporation's controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours. Estimated at the Beginning of the Year 58,000 $1,866,600 Machine-hours Manufacturing overhead Capacity 68,000 $1,866,600 Actual 54,000 $1,866,600 If the Corporation bases its predetermined overhead rate on capacity, then as shown on the income statement prepared for internal management purposes, the cost of unused capacity would be closest to: Multiple Choice O $274,500 $384.300 0 0 O $180,000 C < Prev 2 of 10 !!! Next > Show All _mp3 Censor BEEP S...mp4 A

Answer 1

B. $384,300

Predetermined overhead rate = Estimated total manufacturing overhead at capacity ÷ Estimated total amount of the allocation base at capacity = $1,866,600 ÷ 68,000 machine-hours = $27.45 per machine-hour

Manufacturing overhead applied to jobs = Predetermined overhead rate × Actual hours = $27.45 per machine-hour × 54,000 machine-hours = $1,482,300

Cost of unused capacity = Actual manufacturing overhead cost incurred - Manufacturing overhead applied to jobs

Cost of unused capacity = $1,866,600 - $1,482,300

Cost of unused capacity = $384,300