The management of Michaeli 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.?Estimated activity for the upcoming year43,000machine-hours?Capacity50,000machine-hours?Actual activity for the year45,400machine-hours?Manufacturing overhead (all fixed)$989,000per yearRequired:Determine the cost of unused capacity for the year if the predetermined overhead rate is based on activity at capacity.
What will be an ideal response?
Predetermined overhead rate = Estimated total manufacturing overhead ÷ Estimated total amount of the allocation base = $989,000 ÷ 50,000 MHs = $19.78 per MH
| ? | Actual manufacturing overhead cost incurred | $989,000 | ? |
| ? | Manufacturing overhead applied to jobs: | ? | ? |
| ? | Predetermined overhead rate | $19.78 | per MH |
| ? | Actual hours | 45,400 | MHs |
| ? | Manufacturing overhead applied to jobs | $898,012 | ? |
| ? | Cost of unused capacity | $90,988 | ? |
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