Reference no: EM132662816

PekingCorp.'s cost accountant is planning the year-end review of production costs. One of the areas for review is the analysis of plant capacity and application of overhead. Peking's plant has an annual theoretical capacity of 5,000 machine hours. However, the plant manager has determined that practical capacity of 85% of theoretical capacity is the best measure of capacity usage.

At the beginning of the year, the budget committee had determined the following:

Estimated manufacturing overhead $600,000

Expected capacity usage 80% of practical capacity

At the end of the year, the cost accountant was able to determine the following:

Actual manufacturing overhead $550,000

Actual capacity usage 3,000 machine hours

Problem 1: Which of the following statements is true at the end of the year?

Option 1: Manufacturing overhead is underapplied by $50,000, and unplanned idle capacity cost is $176,471.

Option 2: Planned idle capacity cost is $120,000, and manufacturing overhead spending is $176,471 more than budget.

Option 3: Manufacturing overhead is under applied by $126,471,andunplannedidle capacity cost is $56,471.

Option 4: Planned idle capacity cost is $423,529, and manufacturing overhead spending is $50,000 less than budget.