Question

1.

Mausser 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	$	24,480
Capacity of the jointer		450	hours
Actual results:
Sales	$	74,700
Direct materials	$	16,470
Direct labor	$	16,610
Actual total fixed manufacturing overhead	$	24,480
Selling and administrative expense	$	8,200
Actual hours of jointer use		410	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:

Multiple Choice

$0

$16,280

$2,176

$18,456

2.The management of Plitt Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity. The company's controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 61,000 machine-hours. Capacity is 76,000 machine-hours and the actual level of activity for the year is assumed to be 65,000 machine-hours. All of the manufacturing overhead is fixed and both the estimated amount at the beginning of the year and the actual amount at the end of the year are assumed to be $2,688,880 per year. It is assumed that a number of jobs were worked on during the year, one of which was Job Q20L which required 410 machine-hours.

If the company bases its predetermined overhead rate on capacity, then the amount of manufacturing overhead charged to Job Q20L is closest to:

Multiple Choice

$18,072.80

$13,613.14

$16,960.63

$14,505.80

Answer 1

SOLUTION

Question -1

Correct option is Option C i.e. $2,176

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

= $24,480 / 450 hours = $54.40 per hour

Cost of unused capacity = (Amount of the allocation base at capacity - Actual amount of the allocation base) * Predetermined overhead rate

= (450 hours - 410 hours) * $54.40 per hour

= 40 hours * $54.40 per hour = $2,176