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?

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Answer 1

Textbook Question

Chapter 3B, Problem 3B.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 3B, Problem 3B.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 3B.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 3B.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.

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Using the following information for question 8-10 Honeydew Company produces two products, a high-end laptop computer under the label Bunsen Laptops, and an inexpensive desktop computer under the label Beaker Computers. The two products use two overhead activities, with the following costs: Setting up equipment Machining $2,000 12,000 The controller has collected the expected annual prime costs for each product, the machine hours, the setup hours, and the expected production. Direct Labor Direct Materials Expected Production in Units Machine hours Setup hours 8. Calculate Beaker's consumption ratio for setup hours. a. 0.50 b. 0.45 c. 0.90 d. 0.25 Bunsen Beaker $20,000 $5,000 15,000 4,000 2,000 2,000 750 1,500 50 50

Using the following information for question 8-10 Honeydew Company produces two products, a high-end laptop computer under the label Bunsen Laptops, and an inexpensive desktop computer under the label Beaker Computers. The two products use two overhead activities, with the following costs: Setting up equipment Machining $2,000 12,000 The controller has collected the expected annual prime costs for each product, the machine the setup hours, and the expected production. Bunsen Beaker Direct Labor Direct Materials Expected Production in Units Machine hours $20,000 $5,000 15,000 4,000 2,000 2,000 750 1,500 Setup hours 50 50 8. Calculate Beaker's consumption ratio for setup hours. a. 0.50 b. 0.45 c. 0.90 d. 0.25

Multiple Versus Single Overhead Rates, Activity Drivers Deoro Company has identified the following overhead activities, costs, and activity drivers for the coming year: Expected Cost Activity Driver Activity Capacity Number of setups Number of orders Machine hours Activity Setting up equipment $491,050 Ordering costs 336,600 Machine costs 898,800 Receiving 362,600 Receiving hours Deoro produces two models of dishwashers with the following expected prime costs and activity demands: Model A Model B $843,000 $455,000 8,200 1,600 Direct materials Direct labor Units completed Direct labor hours Number of setups Number of orders Machine hours $563,000 $459,000 15,600 6,800 360 6,900 23,900 3,200 The company's normal activity is 8,400 direct labor hours. Receiving hours 250 12,900 18,900 6,600 610 19,800 42,800 9,800

Answer 2

Textbook Question

Chapter 3B, Problem 3B.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 3B, Problem 3B.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 3B.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 3B.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.

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

Answer 3

Textbook Question

Chapter 3B, Problem 3B.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 3B, Problem 3B.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 3B.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 3B.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.

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

Answer 4

Textbook Question

Chapter 3B, Problem 3B.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 3B, Problem 3B.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 3B.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 3B.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.

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

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