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:

1. Estimated total fixed manufacturing overhead $26,190
2. Capacity of the lathe 270 hours

Actual results:
1. Actual total fixed manufacturing overhead $26,190
2. 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. Calculate the predetermined overhead rate based on capacity.

• predetermined overhead rate = $26,190 / 279 hours = $93.87 per hour

b. Calculate the manufacturing overhead applied.

• applied manufacturing overhead = $93.87 per hour x 240 hours = $22,528.80 ≈ $22,529

c. Calculate the cost of unused capacity.

• cost of unused capacity = (279 hours - 240 hours) x $93.87 per hour = 39 x $93.87 per hour = $3,660.93 ≈ $3,661

or

• $26,190 - $22,529 = $3,661