The Sunshine Corporation produces solar panels. At the end of the most recent fiscal year, Sunshine's cost accountant, Beth, reviewed relevant cost data, focusing on MOH. Since her company uses normal costing, she anticipated a difference in the amount of MOH that was applied compared to the amount that was actually incurred. However, Beth was shocked at the size of the differential. Here is what she found within the MOH account, as well as detail from the beginning of the year when the budgeted MOH rate was determined:
Beth is aware of the following company policy regarding any MOH difference: "any MOH difference that is deemed not significant should be written off in full, in the current period; any MOH difference that is deemed significant should be prorated to the appropriate
accounts so as to better approximate actual costs".
Beth also accessed the following additional information related to the inventory
accounts.
While she does not yet have a clear understanding of what amount might be considered
significant yet, Beth knows she must first calculate the difference between actual MOH
and applied MOH.
Required:
a. Calculate the budgeted MOH rate for Beth's company, assuming that direct labor hours is the cost driver.
b. Determine whether the MOH is under or overapplied, and by how much.
c. Since Beth is unsure if the amount of overapplied or underapplied would be considered significant, she decides to do the work for both options so that she can bring it to her supervisor and ask for additional guidance regarding significance.
(For the following, round any rates or proportions to four decimal places, and round final dollar amounts to the nearest dollar).
1) Prepare the journal entry if the MOH difference between MOH applied and MOH actually incurred is to be written off entirely in the current period.
2) Prepare the calculations and journal entry necessary if the difference between MOH applied and MOH actually incurred is to be prorated to the appropriate inventory and cost accounts based on their ending balances.

Question

The Sunshine Corporation produces solar panels. At the end of the most recent fiscal year, Sunshine's cost accountant, Beth, reviewed relevant cost data, focusing on MOH. Since her company uses normal costing, she anticipated a difference in the amount of MOH that was applied compared to the amount that was actually incurred. However, Beth was shocked at the size of the differential. Here is what she found within the MOH account, as well as detail from the beginning of the year when the budgeted MOH rate was determined:
  Beth is aware of the following company policy regarding any MOH difference: "any MOH difference that is deemed not significant should be written off in full, in the current period; any MOH difference that is deemed significant should be prorated to the appropriate
accounts so as to better approximate actual costs".
Beth also accessed the following additional information related to the inventory
accounts.
  While she does not yet have a clear understanding of what amount might be considered
significant yet, Beth knows she must first calculate the difference between actual MOH
and applied MOH.
Required:
a. Calculate the budgeted MOH rate for Beth's company, assuming that direct labor hours is the cost driver.
b. Determine whether the MOH is under or overapplied, and by how much.
c. Since Beth is unsure if the amount of overapplied or underapplied would be considered significant, she decides to do the work for both options so that she can bring it to her supervisor and ask for additional guidance regarding significance.
(For the following, round any rates or proportions to four decimal places, and round final dollar amounts to the nearest dollar).
1) Prepare the journal entry if the MOH difference between MOH applied and MOH actually incurred is to be written off entirely in the current period.
2) Prepare the calculations and journal entry necessary if the difference between MOH applied and MOH actually incurred is to be prorated to the appropriate inventory and cost accounts based on their ending balances.

Quizplus · Accepted Answer

The Answer of The Sunshine Corporation produces solar panels. At the end of the most recent fiscal year, Sunshine's cost accountant, Beth, reviewed relevant cost data, focusing on MOH. Since her company uses normal costing, she anticipated a difference in the amount of MOH that was applied compared to the amount that was actually incurred. However, Beth was shocked at the size of the differential. Here is what she found within the MOH account, as well as detail from the beginning of the year when the budgeted MOH rate was determined:
  Beth is aware of the following company policy regarding any MOH difference: "any MOH difference that is deemed not significant should be written off in full, in the current period; any MOH difference that is deemed significant should be prorated to the appropriate
accounts so as to better approximate actual costs".
Beth also accessed the following additional information related to the inventory
accounts.
  While she does not yet have a clear understanding of what amount might be considered
significant yet, Beth knows she must first calculate the difference between actual MOH
and applied MOH.
Required:
a. Calculate the budgeted MOH rate for Beth's company, assuming that direct labor hours is the cost driver.
b. Determine whether the MOH is under or overapplied, and by how much.
c. Since Beth is unsure if the amount of overapplied or underapplied would be considered significant, she decides to do the work for both options so that she can bring it to her supervisor and ask for additional guidance regarding significance.
(For the following, round any rates or proportions to four decimal places, and round final dollar amounts to the nearest dollar).
1) Prepare the journal entry if the MOH difference between MOH applied and MOH actually incurred is to be written off entirely in the current period.
2) Prepare the calculations and journal entry necessary if the difference between MOH applied and MOH actually incurred is to be prorated to the appropriate inventory and cost accounts based on their ending balances.

The Sunshine Corporation Produces Solar Panels