Question

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 187 hours per month. The estimated total manufacturing overhead cost at capacity is $15,147 per month. The company bases its predetermined overhead rate on capacity, so its predetermined overhead rate is $81 per hour of bandsaw use. The results of a recent month's operations appear below. $43,720 Sales Beginning inventories Ending inventories Direct materials Direct labor Manufacturing overhead incurred Selling and administrative expense Actual hours of bandsaw use $ 5,300 $8.890 $14,250 58.230

Answer 1

Solution a:

Wixis cabinets
Income Statement
Sales		$43,720
Less: Cost of goods sold:
Direct Material	$5,300
Direct Labor	$8,890
Applied Manufacturing Overhead (157 Hours* $81)	$12,717
Cost of Goods sold		$26,907
Gross Profit		$16,813
Less: Expenses:
Selling and administrative Expenses		$8,230
Cost of unused capacity [(187 -157)* $81]		$2,430
Net operating income		$6,153

Solution b:

Computation of Cost of Unused capacity
Full Capacity hours	187
Less: Actual Hours	157
Unused capacity in Hours	30
* Predetermined overhead rate	$81
Cost of Unused capacity	$2,430