Exercise BAlgo Overhead Rate Based on Capacity LO
Wixis Cabinets makes custom wooden cabinets for highend stereo systems from specialty woods. The
company uses a joborder 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 hours per month.
The estimated total manufacturing overhead cost at capacity is $ per month. The company bases
its predetermined overhead rate on capacity, so its predetermined overhead rate is $ per hour of
bandsaw use.
The results of a recent month's operations appear below:
Required:
a Prepare an income statement for the month. Your income statement should include the cost of
unused capacity as a period expense.
b What was the cost of unused capacity during the month?
