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

Angle Max Industries produces a product which goes through two operations, Assembly and Finishing, before it is ready to be shipped. Next year's expected costs and activities are shown below. Direct labor hours Machine hours Overhead costs Multiple Choice Assume that the Assembly Department allocates overhead using a plantwide overhead rate based on machine hours. How much total overhead will be assigned to a product that requires 2 direct labor hour and 3.30 machine hours in the Assembly Department, and 4.50 direct labor hours and 0.4 machine hours in the Finishing Department? O$17.60. Assembly 180,000 DLH 380,000 MH $380,000 $20.40. Finishing 148,000 DLH 91, 200 MH $562, 400

Techno Incorporated manufactures two models of cameras that can be used as cell phones, MPX, and digital camcorders. Model Annual Sales in Units High F 11,100 Great P 17,100 Techno uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows: High F Great P Direct materials $ 39.10 $ 26.50 Direct labor $ 18.70 $ 14.30 Budget factory overhead: Engineering and Design 2,620 engineering hours $ 445,400 Quality Control 13,050 inspection hours 336,700 Machinery 33,930 machine hours 608,940 Miscellaneous Overhead 26,610 direct labor hours 132,550 Total $ 1,523,590 Techno's controller had been researching activity-based costing and decided to switch to it. A special study determined Techno's two products have the following budgeted activities: High F Great P…

Required information [The following information applies to the questions displayed below.] Performance Products Corporation makes two products, titanium Rims and Posts. Data regarding the two products follow: Rims Posts Direct Labor- Hours per unit 0.70 0.80 Annual Production Additional information about the company follows: a. Rims require $14 in direct materials per unit, and Posts require $10. b. The direct labor wage rate is $20 per hour. Activity Cost Pool Machine setups Special processing General factory 26,000 units 90,000 units c. Rims are more complex to manufacture than Posts and they require special equipment. d. The ABC system has the following activity cost pools: Unit product cost of Rims Unit product cost of Posts Activity Measure Number of setups Machine-hours Direct labor-hours Estimated Overhead Cost $ 33,300 $ 172,800 $ 858,000 Estimated Activity Rims 70 3,000 18,200 Posts 230 0 72,000 Total 300 3,000 90,200 2. Determine the unit product cost of each product…

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