Question

Coble Woodworking Corporation produces fine cabinets. The company uses a job-order costing system in which its predetermined overhead rate is based on capacity. The capacity of the factory is determined by the capacity of its constraint, which is an automated shaper. Additional information is provided below for the most recent month: Estimates at the beginning of the month: Estimated total fixed manufacturing overhead $ 30,510 Capacity of the shaper 270 hours Actual results: Sales $ 104,000 Direct materials $ 11,500 Direct labor $ 16,500 Actual total fixed manufacturing overhead $ 30,510 Selling and administrative expense $ 3,800 Actual hours of shaper use 230 hours The cost of unused capacity that would be reported as a period expense on the income statement prepared for internal management purposes would be closest to:

Answer 1

Answer:

$4,520

Explanation:

Calculation for the cost of unused capacity that would be reported as a period expense on the income statement prepared for internal management purposes

First step is to calculate the Predetermine overhead rate using this formula

Predetermined overhead rate based on capacity = Estimated total fixed manufacturing overhead cost ÷ Estimated total amount of the allocation base

Let plug in the formula

Predetermined overhead rate based on capacity=$ 30,510÷270 hours

Predetermined overhead rate based on capacity=$113 per hour

Now let calculate the Cost of unused capacity using this formula

Cost of unused capacity =( Estimated total amount of the allocation base − Actual amount of the allocation base) × Predetermined overhead rate

Let plug in the formula

Cost of unused capacity= (270 hours − 230 hours) *$113 per hour

Cost of unused capacity=40 hours* $113 per hour

Cost of unused capacity=$4,520

Therefore the cost of unused capacity that would be reported as a period expense on the income statement prepared for internal management purposes will be $4,520