Question

Rapier 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 jointer. Additional information is provided below for the most recent month:
Estimates at the beginning of the month:
Estimated total fixed manufacturing overhead $15,580
Capacity of the jointer 380hours
Actual results:
Sales $60,200
Direct materials $17,800
Direct labor $16,470
Actual total fixed manufacturing overhead $15,580
Selling and administrative expense $9,600
Actual hours of jointer use 360hours

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:

a. $0
b. $5,980
c. $820
d. $6,800

Answer 1

Answer:

c. $820

Explanation:

The computation of the cost of unused capacity is given below:

But before that following calculations need to be done

The Predetermined overhead rate is

= Manufacturing overhead  ÷ capacity of jointer

= $15,580 ÷ 380

= $41 per hour

Given that

Actual use of capacity = 360 hours

Now

Unused hours is

= 380 - 360

= 20 hours

And, finally the cost of unused capacity is

= 20 × $41

= $820