It was the end of the fiscal year, and Helen was evaluating her company's MOH. Since her company uses normal costing and applies overhead based on direct labor hours, she anticipated a difference in the amount of MOH that was applied compared to the amount that was actually incurred. Indeed, there was a difference-and it seemed huge! Here is what she saw within the MOH account, as well as detail from the beginning of the year when the budgeted MOH rate was determined: Budgeted MOH cost Budgeted direct labor hours Actual MOH cost Actual direct labor hours $57,750 35,000 hours $61,000 33,000 hours Helen is aware of the following company policy regarding any MOH difference: "any MOH difference that is deemed "immaterial' should be written off in the current period; any MOH difference that was deemed 'material' should be prorated to the appropriate accounts so as to better approximate actual costs." Helen also has the following additional detail regarding the inventory accounts. End. Bal. RM Inventory $6,500 WIP Inventory 5,900 FG Inventory 16,520 Cost of Goods Sold 95,580 Applied MOH Within End. Bal. $3,600 6,300 35,100 While she does not yet have a clear understanding of what amount might be considered "material," 3,050 knows she has to first calculate the MOH balance.
It was the end of the fiscal year, and Helen was evaluating her company's MOH. Since her company uses normal costing and applies overhead based on direct labor hours, she anticipated a difference in the amount of MOH that was applied compared to the amount that was actually incurred. Indeed, there was a difference-and it seemed huge! Here is what she saw within the MOH account, as well as detail from the beginning of the year when the budgeted MOH rate was determined: Budgeted MOH cost Budgeted direct labor hours Actual MOH cost Actual direct labor hours $57,750 35,000 hours $61,000 33,000 hours Helen is aware of the following company policy regarding any MOH difference: "any MOH difference that is deemed "immaterial' should be written off in the current period; any MOH difference that was deemed 'material' should be prorated to the appropriate accounts so as to better approximate actual costs." Helen also has the following additional detail regarding the inventory accounts. End. Bal. RM Inventory $6,500 WIP Inventory 5,900 FG Inventory 16,520 Cost of Goods Sold 95,580 Applied MOH Within End. Bal. $3,600 6,300 35,100 While she does not yet have a clear understanding of what amount might be considered "material," 3,050 knows she has to first calculate the MOH balance.
Financial And Managerial Accounting
15th Edition
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:WARREN, Carl S.
Chapter23: Evaluating Variances From Standard Costs
Section: Chapter Questions
Problem 4CMA: JoyT Company manufactures Maxi Dolls for sale in toy stores. In planning for this year, JoyT...
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Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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