TempTech manufactures digital thermometers. During the most recent year, TempTech's cost of goods sold, totaled $300,000. The company's Finished Goods Inventory and Work-in-Process Inventory are typically low. However, due to shortages of vital electronic parts, TempTech has been maintaining relatively higher inventories of raw materials. The ending inventories in Work-In-Process and Finished Goods are $20,000 and $30,000, respectively. The ending inventory in Raw Materials (all Direct Materials) is $90,000.
TempTech uses normal costing and its budgeted MOH rate is $2/direct labor hour. Budgeted MOH at the beginning of the year was $200,000; actual MOH costs incurred during the year were $120,000. TempTech actually used 50,000 direct labor hours during the year.
Required:
a. Was TempTech's MOH cost for the year underapplied or overapplied? By how much?
b. Record the journal entry to close out that MOH difference by using the direct write-off method.
c. Record the journal entry to close out the MOH difference by prorating it to the appropriate inventory/cost accounts based on their ending balances, before proration (round proportions to four decimal places if needed).
d. Which of these closing entries is most appropriate for TempTech this year? Explain.
Note that TempTech considers any percentage of underapplied or overapplied MOH over 2% to be relatively significant.

Question

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The Answer of TempTech manufactures digital thermometers. During the most recent year, TempTech's cost of goods sold, totaled $300,000. The company's Finished Goods Inventory and Work-in-Process Inventory are typically low. However, due to shortages of vital electronic parts, TempTech has been maintaining relatively higher inventories of raw materials. The ending inventories in Work-In-Process and Finished Goods are $20,000 and $30,000, respectively. The ending inventory in Raw Materials (all Direct Materials) is $90,000.
TempTech uses normal costing and its budgeted MOH rate is $2/direct labor hour. Budgeted MOH at the beginning of the year was $200,000; actual MOH costs incurred during the year were $120,000. TempTech actually used 50,000 direct labor hours during the year.
Required:
a. Was TempTech's MOH cost for the year underapplied or overapplied? By how much?
b. Record the journal entry to close out that MOH difference by using the direct write-off method.
c. Record the journal entry to close out the MOH difference by prorating it to the appropriate inventory/cost accounts based on their ending balances, before proration (round proportions to four decimal places if needed).
d. Which of these closing entries is most appropriate for TempTech this year? Explain.
Note that TempTech considers any percentage of underapplied or overapplied MOH over 2% to be relatively significant.

TempTech Manufactures Digital Thermometers