Wixis Cabinets makes custom wooden cabinets for high-end stereo systems from specialty woods. The company...
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Accounting
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 185 hours per month. The estimated total manufacturing overhead cost at capacity is $14,985 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 months operations appear below:
Sales
$
43,710
Beginning inventories
$
0
Ending inventories
$
0
Direct materials
$
5,300
Direct labor
$
8,830
Manufacturing overhead incurred
$
14,260
Selling and administrative expense
$
8,170
Actual hours of bandsaw use
155
Required:
1-a. Prepare an income statement that records the cost of unused capacity on the income statement as a period expense.
1-b. How much of the cost of unused capacity can be shown on the income statement as a period expense?
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