Exercise 28-1 Overhead Rate Based on Capacity [LO2-6) Wixis Cabinets makes custo

Question

Exercise 28-1 Overhead Rate Based on Capacity [LO2-6) Wixis Cabinets makes custom wooden cabinets for high-end stereo systems from specialty woods. The co costing system. The capacity of the plant is determined bythe cay of i onstroit, which is ime on the makes finely beveled 189 hours per month. The estimated total manufactur mpany uses a job-order cuts in wood according to the preprogrammed specifications of each cabinet. The bandsaw can operate up to ing overhead cost at capacity is $15,120 per month. The company bases its overhead rate on capacity, so its predetermined overhead rate is $80 per hour of bandsaw use. The results of a recent months operations appear Sales beginaing inventories 43.750 ing inventories s5,350 Manut aeturis overhead ineur ted Actoai 1 hours of bandsaw e Required -a. Prepare 1-b. How much of the cost of unused capacity can be shown on the income statement as a an income statement that records the cost of unused capacity on the income statement as a period expense Prepare an income statement that records the cost of unused capacity on the income statement as a period expense. Cabinets

Explanation / Answer

Direct material 5350 Direct labor 8830 Manufacturing overheads applied 12720 (80*159) Unadjusted Cost of goods sold 26900 Manufacturing overheads under applied 1490 Cost of goods sold 28390 Income statement Sales revenue 43750 Cost of goods sold 28390 Gross profit 15360 Selling and administrative expense 8170 Period cost 2400 (30*80) Net income 4790 2 Cost of unused capacity = hours not used * rate applied 2400 (30*80)

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