Question

The management of Featheringham 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 67,400 machine-hours. Capacity is 80,400 machine-hours and the actual level of activity for the year is assumed to be 64,400 machine-hours. All of the manufacturing overhead is fixed and both the estimated amount at the beginning of the year and the actual amount at the end of the year are assumed to be $2,836,512 per year. It is assumed that a number of jobs were worked on during the year, one of which was Job Z77W which required 450 machine-hours. If the company bases its predetermined overhead rate on capacity, then the predetermined overhead rate is closest to:

Answer 1

Answer:

the predetermined overhead rate is $35.28

Explanation:

The computation of the predetermined overhead rate is given below:

The Predetermined overhead rate is

= Estimated overhead ÷ Capacity hours

= $2,836,512 ÷ 80,400 machine hours

= $35.28

hence, the predetermined overhead rate is $35.28