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	$	15,580
Capacity of the jointer		380	hours
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		360	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

$5,980

$820

$6,800

2. The management of Bullinger 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 16,000 machine-hours. Capacity is 19,000 machine-hours and the actual level of activity for the year is assumed to be 14,700 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 $22,720 per year. For simplicity, it is assumed that this is the estimated manufacturing overhead for the year as well as the manufacturing overhead at capacity. It is further assumed that this is also the actual amount of manufacturing overhead for the year.

If the company bases its predetermined overhead rate on capacity, what would be the cost of unused capacity reported on the income statement prepared for internal management purposes? (Round intermediate calculations to 2 decimal places.)

Multiple Choice

$3,180.00

$3,234.00

$1,846.00

$5,080.00

3. Bosshart Inc. has provided the following data for the month of May. There were no beginning inventories; consequently, the direct materials, direct labor, and manufacturing overhead applied listed below are all for the current month.

	Work In Process			Finished Goods			Cost of Goods Sold			Total
Direct materials	$	10,670		$	12,000		$	81,120		$	103,790
Direct labor		11,630			15,000			101,400			128,030
Manufacturing overhead applied		9,680			9,680			68,640			88,000
Total	$	31,980		$	36,680		$	251,160		$	319,820

Manufacturing overhead for the month was underapplied by $6,000.

The Corporation allocates any underapplied or overapplied manufacturing overhead among work in process, finished goods, and cost of goods sold at the end of the month on the basis of the manufacturing overhead applied during the month in those accounts.

The journal entry to record the allocation of any underapplied or overapplied manufacturing overhead for May would include the following:

Multiple Choice

credit to Work in Process of $31,980

credit to Work in Process of $660

debit to Work in Process of $31,980

debit to Work in Process of $660

4. The management of Bullinger 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 13,000 machine-hours. Capacity is 16,000 machine-hours and the actual level of activity for the year is assumed to be 11,700 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 $18,070 per year. For simplicity, it is assumed that this is the estimated manufacturing overhead for the year as well as the manufacturing overhead at capacity. It is further assumed that this is also the actual amount of manufacturing overhead for the year.

If the company bases its predetermined overhead rate on the estimated amount of the allocation base for the upcoming year, then the predetermined overhead rate is closest to:

Multiple Choice

$1.39 per machine-hour

$1.56 per machine-hour

$1.13 per machine-hour

$1.54 per machine-hour

Answer 1

Solution 1:

Predetermined overhead rate at capacity = Manufacturing overhead /capacity of jointer

= $15,580 / 380 = $41 per hour

Actual use of capacity = 360 hours

Unused hours = 380 -360 = 20 hours

cost of unused capacity = 20 * $41 = $820.

Solution 2:

Predetermined overhead rate at capacity = Manufacturing overhead /Machine hours at capacity

= $22,720 / 19000 = $1.20 per machine hours

Actual use of capacity = 14700 machine hours

Unused hours = 19000 -14700 = 4300 hours

cost of unused capacity = 4300 * $1.20 = $5,160

Solution 3:

Underapplied overhead to be allocated to work in process = $6,000 * $9,680 / $88,000 = $660

Therefore Work in process will be debited by $660 to allocate underapplied overhead

Hence last option is correct.

Solution 4:

Predetermined overhead rate = Estimated overhead / Allocation base for upcoming year

= $18,070 / 13000 = $1.39 per machine hour

Hence first option is corret.