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 Corporations 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 55,200 machine-hours. Capacity is 71,200 machine-hours. All of the manufacturing overhead is fixed and is $3,132,800 per year within the range of 55,200 to 71,200 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 56,000 machine-hours, the cost of unused capacity shown on the income statement prepared for internal management purposes would be closest to:

Multiple Choice

• $44,754

• $713,554

• $668,800

• $45,403