The ABC Company has been in business for 10 years and they are located in Sault Ste. Marie, Ontario. The company manufactures electronic components. The company estimates that its annual manufacturing overhead costs will be $700,000 for 2020 as they were based on the actual overhead costs in the year prior of 2019 that were $690,000.The actual overhead costs at the end of 2020 are $710,000. The company’s activity base information for 2020 is as follows:

         Activity Base                                  Estimated                   Actual

         Direct Labour Cost                     $1,200,000           $1,218,000

         Direct Labour Hours                       150,000                 116,000

         Machine Hours                                     60,000                    58,000

Question

a      For each activity base, calculate the predetermined overhead rate. Explain the reason/benefit in having a predetermined rate.

b)    For each activity base, calculate the amount of overhead applied in 2020. Is the amount of overhead applied the actual amount of overhead in the year.

c)     Calculate the over- or under-applied overhead using each activity base. Explain how the under and over applied overhead balance is reconciled.

d)    Explain one way the company could come up with the estimated activity bases?