The management of Garn Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated activity for the coming year. The Corporation'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 activity for the upcoming year is 59,400 machine-hours. Capacity is 78,400 machine-hours. All of the manufacturing overhead is fixed and is $3,136,000 per year within the range of 59,400 to 78,400 machine-hours. If the Corporation bases its predetermined overhead rate on capacity but the actual level of activity for the year turns out to be 59,900 machine-hours, the cost of unused capacity shown on the income statement prepared for internal management purposes would be closest to: Multiple Choice $26,177 $766.177 $740,000 $26.397

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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The management of Garn Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated activity for the
coming year. The Corporation'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
activity for the upcoming year is 59,400 machine-hours. Capacity is 78,400 machine-hours. All of the manufacturing overhead is fixed and is $3,136,000 per year within the range of 59,400
to 78,400 machine-hours. If the Corporation bases its predetermined overhead rate on capacity but the actual level of activity for the year turns out to be 59,900 machine-hours, the cost of
unused capacity shown on the income statement prepared for internal management purposes would be closest to:
Multiple Choice
$26,177
$766,177
$740,000
$26,397
Transcribed Image Text:The management of Garn Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated activity for the coming year. The Corporation'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 activity for the upcoming year is 59,400 machine-hours. Capacity is 78,400 machine-hours. All of the manufacturing overhead is fixed and is $3,136,000 per year within the range of 59,400 to 78,400 machine-hours. If the Corporation bases its predetermined overhead rate on capacity but the actual level of activity for the year turns out to be 59,900 machine-hours, the cost of unused capacity shown on the income statement prepared for internal management purposes would be closest to: Multiple Choice $26,177 $766,177 $740,000 $26,397
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