Ketogenic Inc. produces delicious, healthy snack bars, based on the Keto diet. Ketogenic's factory is highly automated, utilizing numerous robots and employs very few human workers. Machine hours are used as the cost driver. The company determines a budgeted OH rate at the beginning of the year. This year's MOH rate is budgeted at $2.80/machine hour. Ketogenic uses the direct write-off method to eliminate any underapplied or overapplied MOH. The following events occurred this year (amounts are in thousands):
The following balances existed in these accounts at the beginning of the year: (amounts are in thousands)
Required:
a. Does Ketogenic utilize an actual costing system or a normal costing system? How can you tell?
b. Of the three commonly used cost drivers for manufacturers, why do you think Ketogenic chose Machine Hours?
c. Record the journal entries to account for the production-related events described above.
d. Post your journal entries to all inventory and Cost of Goods Sold accounts, and then calculate ending balances for each. Cost of Goods Sold should be calculated after adjustment for any overapplied or underapplied MOH.
e. How much gross margin did this company generate this year?
f. Would Ketogenic consider this a significant MOH difference? Explain.

Question

Ketogenic Inc. produces delicious, healthy snack bars, based on the Keto diet. Ketogenic's factory is highly automated, utilizing numerous robots and employs very few human workers. Machine hours are used as the cost driver. The company determines a budgeted OH rate at the beginning of the year. This year's MOH rate is budgeted at $2.80/machine hour. Ketogenic uses the direct write-off method to eliminate any underapplied or overapplied MOH. The following events occurred this year (amounts are in thousands):
  The following balances existed in these accounts at the beginning of the year: (amounts are in thousands)
  Required:
a. Does Ketogenic utilize an actual costing system or a normal costing system? How can you tell?
b. Of the three commonly used cost drivers for manufacturers, why do you think Ketogenic chose Machine Hours?
c. Record the journal entries to account for the production-related events described above.
d. Post your journal entries to all inventory and Cost of Goods Sold accounts, and then calculate ending balances for each. Cost of Goods Sold should be calculated after adjustment for any overapplied or underapplied MOH.
e. How much gross margin did this company generate this year?
f. Would Ketogenic consider this a significant MOH difference? Explain.

Quizplus · Accepted Answer

The Answer of Ketogenic Inc. produces delicious, healthy snack bars, based on the Keto diet. Ketogenic's factory is highly automated, utilizing numerous robots and employs very few human workers. Machine hours are used as the cost driver. The company determines a budgeted OH rate at the beginning of the year. This year's MOH rate is budgeted at $2.80/machine hour. Ketogenic uses the direct write-off method to eliminate any underapplied or overapplied MOH. The following events occurred this year (amounts are in thousands):
  The following balances existed in these accounts at the beginning of the year: (amounts are in thousands)
  Required:
a. Does Ketogenic utilize an actual costing system or a normal costing system? How can you tell?
b. Of the three commonly used cost drivers for manufacturers, why do you think Ketogenic chose Machine Hours?
c. Record the journal entries to account for the production-related events described above.
d. Post your journal entries to all inventory and Cost of Goods Sold accounts, and then calculate ending balances for each. Cost of Goods Sold should be calculated after adjustment for any overapplied or underapplied MOH.
e. How much gross margin did this company generate this year?
f. Would Ketogenic consider this a significant MOH difference? Explain.