on Help Save & Exit Su Chapters 2 to 4) The management of Holdaway Corporation w
ID: 342442 • Letter: O
Question
on Help Save & Exit Su Chapters 2 to 4) The management of Holdaway 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 llustrate how this new system would work In this is machine hours and the estimated amount of the allocation base for the upcoming year is 79.000 machine-hours. Capacity is 88,000 machine-hours and the actual level of activity for the year is assumed to be 74,900 machine-hours. All of the manufactur year. For simplicity, it is assumed capacity It is further assumed that this is also the actual amount of manufacturing overhead for the year the estimated amount at the beginning of the year and the actual amount at the end of the year are assumed to be $5,700,640 that this is the estimated manufacturing overhead for the year as well as the manufacturing overhead at if the company bases its predetermined statement prepared for internal management purposes? overhead rate on capacity, what would be the cost of unused capacity reported on the income $848.618 Next >Explanation / Answer
CALCULATION OF THE RECOVERY RATE OF OVERHEAD Recovery rate = Total Overhead expenses = $ 57,00,640 "/" By Total Capacity in machiene Hours = 88000 Machiene Hours Recovery rate = 64.78 Per machine Hours Recovered Overhead = Actual activity level X Recovery Rate Recovered Overhead = 74,900 Machiene Hrs X $ 64.78 = $ 48,52,022 Unused Capacity = Total Overhead = $ 57,00,640 Less: Used Capacity $ 48,52,022 Unused Capacity = $ 8,48,618 Answer = Option 2 = $ 8,48,618
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