Overhead Rate Based on Capacity LO3â€”6 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 180 hours per month. The estimated total manufacturing overhead cost at capacity is $14,760 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: Required: Prepare an income statement following the example in Exhibit 3Bâ€”1 that records the cost of unused capacity on the income statement as a period expense. Why do unused capacity costs arise when the predetermined overhead rate is based on capacity?

Question

Want to see more full solutions like this?

Answer 1

Textbook Question

Chapter 4B, Problem 4B.1E

Overhead Rate Based on Capacity LO3â€”6

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 180 hours per month. The estimated total manufacturing overhead cost at capacity is $14,760 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:

Chapter 4B, Problem 4B.1E, Overhead Rate Based on Capacity LO3â€”6 Wixis Cabinets makes custom wooden cabinets for high-end

Required:

Prepare an income statement following the example in Exhibit 3Bâ€”1 that records the cost of unused capacity on the income statement as a period expense.
Why do unused capacity costs arise when the predetermined overhead rate is based on capacity?

1.

Expert Solution

To determine

Introduction: Job costing is a technique of determine the cost of a manufacturing job rather than the process of the job. Manufacturing overhead is applied to product or job order is determined as predetermined overhead. Absorption costing is used to calculate the cost of product while taking indirect and direct expense into account. Activity based costing assign the cost of all the activity of the organization according to their actual consumption

To prepare: The income statement that record the cost of unused capacity.

Answer to Problem 4B.1E

Income statement given shown below:

Explanation of Solution

Cost of goods manufactured and under applied overhead

Particular	Amount $
Direct material	5,350
Direct labor	8,860
Manufacturing overhead applied	12,300
Total manufacturing cost charged to jobs	26,510
Add: Beginning work in process inventory	0
	26,510
Deduct: Ending work in process inventory	0
Cost of goods manufactured	26,510

The manufacturing overhead incurred was $14200 and the applied manufacturing overhead was $12,300. Thus, under applied overhead is:

=$12,300−$14220=$(1920) under applied

Income statement:

Particular	Amount $	Amount $
Sales		43,740
Cost of goods		26,510
Gross margin		17,230
Under applied manufacturing overhead	1920
Selling and manufacturing expense	8180	10,100
Net operating income		7,130

2.

Expert Solution

To determine

Introduction: Job costing is a technique of determine the cost of a manufacturing job rather than the process of the job. Manufacturing overhead is applied to product or job order is determined as predetermined overhead. Absorption costing is used to calculate the cost of product while taking indirect and direct expense into account. Activity based costing assign the cost of all the activity of the organization according to their actual consumption

The reason for unused capacity cost arises when the predetermined overhead rate is based on capacity.

Answer to Problem 4B.1E

Manufacturing overhead typically includes a significant amount of fixed cost that results in overhead being under applied when the predetermined overhead rate is based on capacity.

Explanation of Solution

Manufacturing overhead typically includes a significant amount of fixed cost that results in overhead being under applied when the predetermined overhead rate is based on capacity. If the plant never operates at full capacity, an amount less than the total fixed cost will actually be applied to each job. However, since fixed costs remain fixed the amount overhead applied to each job will typically be underapplied.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

Hrs.7 PT corp makes 300 units of A per year. At this level, the cost per unit includes $360 in direct materials, $1,000 in direct labor, $240 in variable overhead, and $900 in fixed overhead. An outside supplier has offered to make all 300 units for $2,100 per unit. If PT accepts this offer, two thirds of the fixed overhead would persist, but would be defrayed by renting out the floor space for $72,000 per year. What is the total fixed costs from the original estimate of production costs per unit? How much of the total fixed costs will persist (including defrayal by renting the space)?

H6. Broduer Aquatics manufactures swimming pool equipment. Broduer estimates total manufacturing overhead costs next year to be $2,500,000 The company also estimates it will use 50,000 direct labour hours and incur $1,000,000 of direct labour cost next year. In addition, the machines are expected to be run for 30,000 hours. Compute the predetermined manufacturing overhead rate for next year under the following independent situations: 1. Assume that Brodeur uses direct labour hours as its manufacturing overhead allocation base. 2. Assume that Brodeur suses direct labour cost as its manufacturing overhead allocation base. 3. Assume that Brodeur uses machine hours as its manufacturing allocation base

Allocated Fixed Manufacturing Overhead $5.00 Unit Cost $26.00 Note: The fixed manufacturing overhead is common to the company. The production capacity is 327,000 units per year. However, Bluejay Rollers expects to produce only 220,000 units for the coming year. The company also has fixed selling costs of $574,000 per year and variable selling costs of $4 per unit sold. Each skateboard normally sells for $39 each. Recently, a customer offered to buy 52,000 skateboards at a special price of $21 each. This order would not have any variable selling costs because no sales commissions are involved. Based on a quantitative analysis, should the company accept the special order? Do not enter dollar signs or commas in the input boxes. Use the negative sign for values that must be subtracted and negative values. Total Revenues $Answer Total Direct

Answer 2

Textbook Question

Chapter 4B, Problem 4B.1E

Overhead Rate Based on Capacity LO3â€”6

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 180 hours per month. The estimated total manufacturing overhead cost at capacity is $14,760 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:

Chapter 4B, Problem 4B.1E, Overhead Rate Based on Capacity LO3â€”6 Wixis Cabinets makes custom wooden cabinets for high-end

Required:

Prepare an income statement following the example in Exhibit 3Bâ€”1 that records the cost of unused capacity on the income statement as a period expense.
Why do unused capacity costs arise when the predetermined overhead rate is based on capacity?

1.

Expert Solution

To determine

Introduction: Job costing is a technique of determine the cost of a manufacturing job rather than the process of the job. Manufacturing overhead is applied to product or job order is determined as predetermined overhead. Absorption costing is used to calculate the cost of product while taking indirect and direct expense into account. Activity based costing assign the cost of all the activity of the organization according to their actual consumption

To prepare: The income statement that record the cost of unused capacity.

Answer to Problem 4B.1E

Income statement given shown below:

Explanation of Solution

Cost of goods manufactured and under applied overhead

Particular	Amount $
Direct material	5,350
Direct labor	8,860
Manufacturing overhead applied	12,300
Total manufacturing cost charged to jobs	26,510
Add: Beginning work in process inventory	0
	26,510
Deduct: Ending work in process inventory	0
Cost of goods manufactured	26,510

The manufacturing overhead incurred was $14200 and the applied manufacturing overhead was $12,300. Thus, under applied overhead is:

=$12,300−$14220=$(1920) under applied

Income statement:

Particular	Amount $	Amount $
Sales		43,740
Cost of goods		26,510
Gross margin		17,230
Under applied manufacturing overhead	1920
Selling and manufacturing expense	8180	10,100
Net operating income		7,130

2.

Expert Solution

To determine

Introduction: Job costing is a technique of determine the cost of a manufacturing job rather than the process of the job. Manufacturing overhead is applied to product or job order is determined as predetermined overhead. Absorption costing is used to calculate the cost of product while taking indirect and direct expense into account. Activity based costing assign the cost of all the activity of the organization according to their actual consumption

The reason for unused capacity cost arises when the predetermined overhead rate is based on capacity.

Answer to Problem 4B.1E

Manufacturing overhead typically includes a significant amount of fixed cost that results in overhead being under applied when the predetermined overhead rate is based on capacity.

Explanation of Solution

Manufacturing overhead typically includes a significant amount of fixed cost that results in overhead being under applied when the predetermined overhead rate is based on capacity. If the plant never operates at full capacity, an amount less than the total fixed cost will actually be applied to each job. However, since fixed costs remain fixed the amount overhead applied to each job will typically be underapplied.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Textbook Question

Chapter 4B, Problem 4B.1E

Overhead Rate Based on Capacity LO3â€”6

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 180 hours per month. The estimated total manufacturing overhead cost at capacity is $14,760 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:

Chapter 4B, Problem 4B.1E, Overhead Rate Based on Capacity LO3â€”6 Wixis Cabinets makes custom wooden cabinets for high-end

Required:

Prepare an income statement following the example in Exhibit 3Bâ€”1 that records the cost of unused capacity on the income statement as a period expense.
Why do unused capacity costs arise when the predetermined overhead rate is based on capacity?

1.

Expert Solution

To determine

Introduction: Job costing is a technique of determine the cost of a manufacturing job rather than the process of the job. Manufacturing overhead is applied to product or job order is determined as predetermined overhead. Absorption costing is used to calculate the cost of product while taking indirect and direct expense into account. Activity based costing assign the cost of all the activity of the organization according to their actual consumption

To prepare: The income statement that record the cost of unused capacity.

Answer to Problem 4B.1E

Income statement given shown below:

Explanation of Solution

Cost of goods manufactured and under applied overhead

Particular	Amount $
Direct material	5,350
Direct labor	8,860
Manufacturing overhead applied	12,300
Total manufacturing cost charged to jobs	26,510
Add: Beginning work in process inventory	0
	26,510
Deduct: Ending work in process inventory	0
Cost of goods manufactured	26,510

The manufacturing overhead incurred was $14200 and the applied manufacturing overhead was $12,300. Thus, under applied overhead is:

=$12,300−$14220=$(1920) under applied

Income statement:

Particular	Amount $	Amount $
Sales		43,740
Cost of goods		26,510
Gross margin		17,230
Under applied manufacturing overhead	1920
Selling and manufacturing expense	8180	10,100
Net operating income		7,130

2.

Expert Solution

To determine

Introduction: Job costing is a technique of determine the cost of a manufacturing job rather than the process of the job. Manufacturing overhead is applied to product or job order is determined as predetermined overhead. Absorption costing is used to calculate the cost of product while taking indirect and direct expense into account. Activity based costing assign the cost of all the activity of the organization according to their actual consumption

The reason for unused capacity cost arises when the predetermined overhead rate is based on capacity.

Answer to Problem 4B.1E

Manufacturing overhead typically includes a significant amount of fixed cost that results in overhead being under applied when the predetermined overhead rate is based on capacity.

Explanation of Solution

Manufacturing overhead typically includes a significant amount of fixed cost that results in overhead being under applied when the predetermined overhead rate is based on capacity. If the plant never operates at full capacity, an amount less than the total fixed cost will actually be applied to each job. However, since fixed costs remain fixed the amount overhead applied to each job will typically be underapplied.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Textbook Question

Chapter 4B, Problem 4B.1E

Overhead Rate Based on Capacity LO3â€”6

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 180 hours per month. The estimated total manufacturing overhead cost at capacity is $14,760 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:

Chapter 4B, Problem 4B.1E, Overhead Rate Based on Capacity LO3â€”6 Wixis Cabinets makes custom wooden cabinets for high-end

Required:

Prepare an income statement following the example in Exhibit 3Bâ€”1 that records the cost of unused capacity on the income statement as a period expense.
Why do unused capacity costs arise when the predetermined overhead rate is based on capacity?

1.

Expert Solution

To determine

Introduction: Job costing is a technique of determine the cost of a manufacturing job rather than the process of the job. Manufacturing overhead is applied to product or job order is determined as predetermined overhead. Absorption costing is used to calculate the cost of product while taking indirect and direct expense into account. Activity based costing assign the cost of all the activity of the organization according to their actual consumption

To prepare: The income statement that record the cost of unused capacity.

Answer to Problem 4B.1E

Income statement given shown below:

Explanation of Solution

Cost of goods manufactured and under applied overhead

Particular	Amount $
Direct material	5,350
Direct labor	8,860
Manufacturing overhead applied	12,300
Total manufacturing cost charged to jobs	26,510
Add: Beginning work in process inventory	0
	26,510
Deduct: Ending work in process inventory	0
Cost of goods manufactured	26,510

The manufacturing overhead incurred was $14200 and the applied manufacturing overhead was $12,300. Thus, under applied overhead is:

=$12,300−$14220=$(1920) under applied

Income statement:

Particular	Amount $	Amount $
Sales		43,740
Cost of goods		26,510
Gross margin		17,230
Under applied manufacturing overhead	1920
Selling and manufacturing expense	8180	10,100
Net operating income		7,130

2.

Expert Solution

To determine

Introduction: Job costing is a technique of determine the cost of a manufacturing job rather than the process of the job. Manufacturing overhead is applied to product or job order is determined as predetermined overhead. Absorption costing is used to calculate the cost of product while taking indirect and direct expense into account. Activity based costing assign the cost of all the activity of the organization according to their actual consumption

The reason for unused capacity cost arises when the predetermined overhead rate is based on capacity.

Answer to Problem 4B.1E

Manufacturing overhead typically includes a significant amount of fixed cost that results in overhead being under applied when the predetermined overhead rate is based on capacity.

Explanation of Solution

Manufacturing overhead typically includes a significant amount of fixed cost that results in overhead being under applied when the predetermined overhead rate is based on capacity. If the plant never operates at full capacity, an amount less than the total fixed cost will actually be applied to each job. However, since fixed costs remain fixed the amount overhead applied to each job will typically be underapplied.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Textbook Question

Answer 6

Textbook Question

Answer 7

1.

Expert Solution

To determine

Introduction: Job costing is a technique of determine the cost of a manufacturing job rather than the process of the job. Manufacturing overhead is applied to product or job order is determined as predetermined overhead. Absorption costing is used to calculate the cost of product while taking indirect and direct expense into account. Activity based costing assign the cost of all the activity of the organization according to their actual consumption

To prepare: The income statement that record the cost of unused capacity.

Answer to Problem 4B.1E

Income statement given shown below:

Explanation of Solution

Cost of goods manufactured and under applied overhead

Particular	Amount $
Direct material	5,350
Direct labor	8,860
Manufacturing overhead applied	12,300
Total manufacturing cost charged to jobs	26,510
Add: Beginning work in process inventory	0
	26,510
Deduct: Ending work in process inventory	0
Cost of goods manufactured	26,510

The manufacturing overhead incurred was $14200 and the applied manufacturing overhead was $12,300. Thus, under applied overhead is:

=$12,300−$14220=$(1920) under applied

Income statement:

Particular	Amount $	Amount $
Sales		43,740
Cost of goods		26,510
Gross margin		17,230
Under applied manufacturing overhead	1920
Selling and manufacturing expense	8180	10,100
Net operating income		7,130

2.

Expert Solution

To determine

Introduction: Job costing is a technique of determine the cost of a manufacturing job rather than the process of the job. Manufacturing overhead is applied to product or job order is determined as predetermined overhead. Absorption costing is used to calculate the cost of product while taking indirect and direct expense into account. Activity based costing assign the cost of all the activity of the organization according to their actual consumption

The reason for unused capacity cost arises when the predetermined overhead rate is based on capacity.

Answer to Problem 4B.1E

Manufacturing overhead typically includes a significant amount of fixed cost that results in overhead being under applied when the predetermined overhead rate is based on capacity.

Explanation of Solution

Manufacturing overhead typically includes a significant amount of fixed cost that results in overhead being under applied when the predetermined overhead rate is based on capacity. If the plant never operates at full capacity, an amount less than the total fixed cost will actually be applied to each job. However, since fixed costs remain fixed the amount overhead applied to each job will typically be underapplied.

Answer 8

1.

Expert Solution

To determine

Introduction: Job costing is a technique of determine the cost of a manufacturing job rather than the process of the job. Manufacturing overhead is applied to product or job order is determined as predetermined overhead. Absorption costing is used to calculate the cost of product while taking indirect and direct expense into account. Activity based costing assign the cost of all the activity of the organization according to their actual consumption

To prepare: The income statement that record the cost of unused capacity.

Answer to Problem 4B.1E

Income statement given shown below:

Explanation of Solution

Cost of goods manufactured and under applied overhead

Particular	Amount $
Direct material	5,350
Direct labor	8,860
Manufacturing overhead applied	12,300
Total manufacturing cost charged to jobs	26,510
Add: Beginning work in process inventory	0
	26,510
Deduct: Ending work in process inventory	0
Cost of goods manufactured	26,510

The manufacturing overhead incurred was $14200 and the applied manufacturing overhead was $12,300. Thus, under applied overhead is:

=$12,300−$14220=$(1920) under applied

Income statement:

Particular	Amount $	Amount $
Sales		43,740
Cost of goods		26,510
Gross margin		17,230
Under applied manufacturing overhead	1920
Selling and manufacturing expense	8180	10,100
Net operating income		7,130

Answer 9

1.

Expert Solution

Answer 10

1.

Expert Solution

Answer 11

Expert Solution

Answer 12

To determine

Introduction: Job costing is a technique of determine the cost of a manufacturing job rather than the process of the job. Manufacturing overhead is applied to product or job order is determined as predetermined overhead. Absorption costing is used to calculate the cost of product while taking indirect and direct expense into account. Activity based costing assign the cost of all the activity of the organization according to their actual consumption

To prepare: The income statement that record the cost of unused capacity.

Answer 13

Answer to Problem 4B.1E

Income statement given shown below:

Answer 14

Explanation of Solution

Cost of goods manufactured and under applied overhead

Particular	Amount $
Direct material	5,350
Direct labor	8,860
Manufacturing overhead applied	12,300
Total manufacturing cost charged to jobs	26,510
Add: Beginning work in process inventory	0
	26,510
Deduct: Ending work in process inventory	0
Cost of goods manufactured	26,510

The manufacturing overhead incurred was $14200 and the applied manufacturing overhead was $12,300. Thus, under applied overhead is:

=$12,300−$14220=$(1920) under applied

Income statement:

Particular	Amount $	Amount $
Sales		43,740
Cost of goods		26,510
Gross margin		17,230
Under applied manufacturing overhead	1920
Selling and manufacturing expense	8180	10,100
Net operating income		7,130

Answer 15

2.

Expert Solution

To determine

Introduction: Job costing is a technique of determine the cost of a manufacturing job rather than the process of the job. Manufacturing overhead is applied to product or job order is determined as predetermined overhead. Absorption costing is used to calculate the cost of product while taking indirect and direct expense into account. Activity based costing assign the cost of all the activity of the organization according to their actual consumption

The reason for unused capacity cost arises when the predetermined overhead rate is based on capacity.

Answer to Problem 4B.1E

Manufacturing overhead typically includes a significant amount of fixed cost that results in overhead being under applied when the predetermined overhead rate is based on capacity.

Explanation of Solution

Manufacturing overhead typically includes a significant amount of fixed cost that results in overhead being under applied when the predetermined overhead rate is based on capacity. If the plant never operates at full capacity, an amount less than the total fixed cost will actually be applied to each job. However, since fixed costs remain fixed the amount overhead applied to each job will typically be underapplied.

Answer 16

2.

Expert Solution

Answer 17

2.

Expert Solution

Answer 18

Expert Solution

Answer 19

To determine

Introduction: Job costing is a technique of determine the cost of a manufacturing job rather than the process of the job. Manufacturing overhead is applied to product or job order is determined as predetermined overhead. Absorption costing is used to calculate the cost of product while taking indirect and direct expense into account. Activity based costing assign the cost of all the activity of the organization according to their actual consumption

The reason for unused capacity cost arises when the predetermined overhead rate is based on capacity.

Answer 20

Answer to Problem 4B.1E

Manufacturing overhead typically includes a significant amount of fixed cost that results in overhead being under applied when the predetermined overhead rate is based on capacity.

Answer 21

Explanation of Solution

Manufacturing overhead typically includes a significant amount of fixed cost that results in overhead being under applied when the predetermined overhead rate is based on capacity. If the plant never operates at full capacity, an amount less than the total fixed cost will actually be applied to each job. However, since fixed costs remain fixed the amount overhead applied to each job will typically be underapplied.

Answer 22

Ch. 4B - Overhead Rate Based on Capacity LO3â€”6 Wixis...Ch. 4B - Prob. 4B.2E Ch. 4B - Prob. 4B.3P Ch. 4B - Ethics; Predetermined Overhead Rate and Capacity...

Videos

Answer to Problem 4B.1E

Explanation of Solution

Answer to Problem 4B.1E

Explanation of Solution

Want to see more full solutions like this?

Chapter 4B Solutions