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Sharrar Corporation: Determine the under or overapplied OH

The management of Sharrar 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. In this example, the allocation
base is machine-hours and the estimated amount of the
allocation base for the upcoming year is 45,000 machine hours.
In addition, capacity is 52,000 machine-hours and
the actual activity for the year is 47,100 machine-hours. All
of the manufacturing overhead is fixed and is $1,029,600
per year. For simplicity, it's assumed that this is the estimated
manufacturing overhead for the year as well as the
manufacturing overhead at capacity and the actual amount
of manufacturing overhead for the year.
Required:
A. Determine the predetermined overhead rate if the
predetermined overhead rate is based on the estimated
amount of the allocation base.
B. Determine the underapplied or overapplied overhead
for the year if the predetermined overhead rate is
based on the estimated amount of the allocation base.
C.Determine the predetermined overhead rate if the predeteremined overhead rate is based on the amount of the allocation base at capacity.
D. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

Solution Summary

Your tutorial (attached in Excel, click in cells to see computations) shows you how to compute the predetermined overhead rate and then apply the rate to find the over and under applied overhead.

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