The management of Plitt 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 55,000 machine-hours. Capacity is 67,000 machine-hours and the actual level of activity for the year is assumed to be 61,000 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 $2,211,000 per year. It is assumed that a number of jobs were worked on during the year, one of which was Job Q20L which
required 410 machine-hours.If the company bases its predetermined overhead rate on capacity, what would be the cost of unused capacity reported on the income statement prepared for internal management purposes?
A. $241,200
B. $217,475
C. $396,000
D. $198,000
Answer: D
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