E8.2 (LO 1, 2, 3), AN Suni, the manager of Stargazers, is analyzing the company’s MOH costs from last year. Stargazers had always followed an actual costing system when determining the costs of its customizable telescopes. Suni wondered if it would be better to switch to a normal costing system, as she had heard a number of people talking about that at an industry conference she attended the previous month. Since Stargazers has a highly machine-intensive operation, machine hours are used as its MOH cost driver. Here are the costs and other MOH information Suni is analyzing: Budgeted MOH cost $422,400 Actual MOH cost $414,720 Budgeted machine hours 96,000 Actual machine hours 108,000 Required 1.Determine the actual MOH rate and the budgeted MOH rate Stargazers would have used last year under actual costing and normal costing, respectively. 2. Calculate total applied MOH under both actual costing and normal costing for last year. 3. How much would Stargazers’ under- or overapplied MOH costs be if it followed an actual costing system? If it followed a normal costing system? 4. What are the key advantages and disadvantages to both of these systems, and what does that mean for Stargazers’ ability to price its products if it bases its selling price on cost?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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E8.2 (LO 1, 2, 3), AN Suni, the manager of Stargazers, is analyzing the company’s MOH costs from last year. Stargazers had always followed an actual costing system when determining the costs of its customizable telescopes. Suni wondered if it would be better to switch to a normal costing system, as she had heard a number of people talking about that at an industry conference she attended the previous month. Since Stargazers has a highly machine-intensive operation, machine hours are used as its MOH cost driver. Here are the costs and other MOH information Suni is analyzing: Budgeted MOH cost $422,400 Actual MOH cost $414,720 Budgeted machine hours 96,000 Actual machine hours 108,000 Required 1.Determine the actual MOH rate and the budgeted MOH rate Stargazers would have used last year under actual costing and normal costing, respectively. 2. Calculate total applied MOH under both actual costing and normal costing for last year. 3. How much would Stargazers’ under- or overapplied MOH costs be if it followed an actual costing system? If it followed a normal costing system? 4. What are the key advantages and disadvantages to both of these systems, and what does that mean for Stargazers’ ability to price its products if it bases its selling price on cost?

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