Question
P8.1 (LO 1, 2, 3), AP The Milky Way makes and sells milkshakes in individual-sized serving containers. Its most popular flavors are strawberry, caramel, chocolate,
P8.1 (LO 1, 2, 3), AP The Milky Way makes and sells milkshakes in individual-sized serving containers. Its most popular flavors are strawberry, caramel, chocolate, and vanilla. Due to its automated processes, it uses machine hours as its cost driver, and the company determines a budgeted MOH rate at the beginning of the year. This years rate is estimated at $1.25/machine hour. The following events occurred this year (amounts are in thousands). 1. Purchased milk, sugar, flavorings, and other ingredients ($420 direct, $30 indirect) $450 2. Transferred direct materials into production 510 3. Incurred direct labor cost for factory workers 375 4. Transferred indirect materials into production 42 5. Incurred salary for factory supervisors 135 6. Received utility bill for factory 18 7. Incurred labor cost for maintenance employees in factory 55 8. Applied MOH based on 240,000 actual machine hours used ? 9. Recorded cost of goods completed 1,370 10. Recognized revenue for milkshakes sold on account 2,626 11. Recognized Cost of Goods Sold associated with units sold 1,545 The following balances existed in these accounts at the beginning of the year. RM Inventory $300 ($230 direct materials, $70 indirect materials) WIP Inventory 400 FG Inventory 250.
How much gross margin did this company generate this year (before any MOH difference is accounted for)?
Was the company under- or overapplied in its MOH costs this year? By how much? Would The Milky Way consider this a significant MOH difference? Explain.
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