Exercise 3B-1 (Algo) Overhead Rate Based on Capacity [LO3-6]

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 186 hours per month. The estimated total manufacturing overhead cost at capacity is $15,624 per month. The company bases its predetermined overhead rate on capacity, so its predetermined overhead rate is $84 per hour of bandsaw use.

The results of a recent months operations appear below:

Sales	$	43,760
Beginning inventories	$	0
Ending inventories	$	0
Direct materials	$	5,300
Direct labor	$	8,860
Manufacturing overhead incurred	$	14,230
Selling and administrative expense	$	8,210
Actual hours of bandsaw use		156

Required:

1-a. Using Exhibit 3B-1 as your guide, prepare an income statement for the month. Your income statement should include the cost of unused capacity as a period expense.

1-b. What was the cost of unused capacity during the month?

1 a -

Using Exhibit 3B-1 as your guide, prepare an income statement for the month. Your income statement should include the cost of unused capacity as a period expense.

Wixis Cabinets
Income Statement
Other expenses:

1 b -

What was the cost of unused capacity during the month?

Cost of unused capacity