Wixis Cabinets makes custom wooden cabinets for high-end stereosystems from specialty woods. The company uses a job-order costingsystem. The capacity of the plant is determined by the capacity ofits constraint, which is time on the automated bandsaw that makesfinely beveled cuts in wood according to the preprogrammedspecifications of each cabinet. The bandsaw can operate up to 187hours per month. The estimated total manufacturing overhead cost atcapacity is $15,708 per month. The company bases its predeterminedoverhead rate on capacity, so its predetermined overhead rate is$84 per hour of bandsaw use.
The results of a recent month’s operations appear below:
| | | |
| Sales | $ | 43,770 |
| Beginning inventories | $ | 0 |
| Ending inventories | $ | 0 |
| Direct materials | $ | 5,370 |
| Direct labor | $ | 8,890 |
| Manufacturing overhead incurred | $ | 14,270 |
| Selling and administrative expense | $ | 8,230 |
| Actual hours of bandsaw use | | 157 |
|
Required:
1-a. Prepare an income statement that records the cost of unusedcapacity on the income statement as a period expense.
1-b. How much of the cost of unused capacity can be shown on theincome statement as a period expense?
