Wixis Cabinets makes custom wooden cabinets for high-end stereo systems from specialty woods. The company uses a job-order costing system. The capacity of the plant is determined by the capacity of its constraint, which is time on the automated bandsaw that makes finely beveled cuts in wood according to the preprogrammed specifications of each cabinet. The bandsaw can operate up to 184 hours per month. The estimated total manufacturing overhead cost at capacity is $15,088 per month. The company bases its predetermined overhead rate on capacity, so its predetermined overhead rate is $82 per hour of bandsaw use.The results of a recent month’s operations appear below:Sales $ 43,710Beginning inventories $ 0Ending inventories $ 0Direct materials $ 5,380Direct labor $ 8,860Manufacturing overhead incurred $ 14,260Selling and administrative expense $ 8,180Actual hours of bandsaw use 154Required:1-a. Prepare an income statement that records the cost of unused capacity on the income statement as a period expense.1-b. How much of the cost of unused capacity can be shown on the income statement as a period expense

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Asked Feb 18, 2019
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Wixis Cabinets makes custom wooden cabinets for high-end stereo systems from specialty woods. The company uses a job-order costing system. The capacity of the plant is determined by the capacity of its constraint, which is time on the automated bandsaw that makes finely beveled cuts in wood according to the preprogrammed specifications of each cabinet. The bandsaw can operate up to 184 hours per month. The estimated total manufacturing overhead cost at capacity is $15,088 per month. The company bases its predetermined overhead rate on capacity, so its predetermined overhead rate is $82 per hour of bandsaw use.

The results of a recent month’s operations appear below:

Sales $ 43,710
Beginning inventories $ 0
Ending inventories $ 0
Direct materials $ 5,380
Direct labor $ 8,860
Manufacturing overhead incurred $ 14,260
Selling and administrative expense $ 8,180
Actual hours of bandsaw use 154

Required:

1-a. Prepare an income statement that records the cost of unused capacity on the income statement as a period expense.

1-b. How much of the cost of unused capacity can be shown on the income statement as a period expense

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Expert Answer

Step 1

Given information below

fullscreen
Step 2

Fixed overhead  $15088 for 184 hour

but plant used for 154 hour.

Step 3

Prepare income statement 

Particular

Detail

Amont ($)

 

Sale

Cost of material consumed

    

Opening stock

   +  Direct material

    + Direct labor

-          Closing stock

                                           Gross profit

Manufacturing overhead incurred

Selling and administrative expense

            ...

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