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 42 18 year. This year's 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 $450 ($420 direct, $30 indirect) 2. Transferred direct materials into production 510 3. Incurred direct labor cost for factory workers 375 4. Transferred indirect materials into production 5. Incurred salary for factory supervisors 135 6. Received utility bill for factory 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 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 Required a. Does The Milky Way utilize an actual costing system or a normal costing system? How can you tell? b. Record the journal entries to account for the production-related events described above. c. Post your journal entries to all inventory and Cost of Goods Sold accounts, and then calculate end- ing balances for each. d. How much gross margin did this company generate this year (before any MOH difference is accounted for)? e. 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. 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 42 18 year. This year's 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 $450 ($420 direct, $30 indirect) 2. Transferred direct materials into production 510 3. Incurred direct labor cost for factory workers 375 4. Transferred indirect materials into production 5. Incurred salary for factory supervisors 135 6. Received utility bill for factory 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 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 Required a. Does The Milky Way utilize an actual costing system or a normal costing system? How can you tell? b. Record the journal entries to account for the production-related events described above. c. Post your journal entries to all inventory and Cost of Goods Sold accounts, and then calculate end- ing balances for each. d. How much gross margin did this company generate this year (before any MOH difference is accounted for)? e. 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
