Question

Danaher Woodworking Corporation produces fine furniture. 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 lathe. Additional information is provided below for the most recent month: Estimates at the beginning of the month: Estimated total fixed manufacturing overhead $ 26,190 Capacity of the lathe 270 hours Actual results: Actual total fixed manufacturing overhead $ 26,190 Actual hours of lathe use 240 hours Required: a. Calculate the predetermined overhead rate based on capacity. b. Calculate the manufacturing overhead applied. c. Calculate the cost of unused capacity.

Answer 1

a.

Predetermined overhead rate = Estimated total fixed manufacturing overhead/Capacity of the lathe

Predetermined overhead rate = $26,190/270 hours = $97 per hour

b.

Manufacturing overhead applied = Actual hours of the lathe use * Predetermined overhead rate

Manufacturing overhead applied = 240 hours * $97 = $23,280

c.

Unused capacity = Capacity of the lathe – Actual hours of the lathe use = 270 hours – 240 hours = 30 hours

Cost of unused capacity = Unused capacity * Predetermined overhead rate = 30 hours * $97 per hour = $2,910