Question

There are two acceptable methods for closing out any balances of under or overapplied overhead. One method involves allocation, whereas the other closes any balance (if immaterial in amount) directly to:A) Finished Goods inventory.B) Cost of Goods Sold.C) Cost of Goods Manufactured.D) Work in Process inventory.

Answer 1

Answer:

B) Cost of Goods Sold.

Explanation:

Close the manufacturing overhead account agains Cost of goods sold

This method is done when the amount is  inconsequential. it is not important, it will not change havily the results and decision of the company.

   Overhead

debit       credit    

actual      applied

to close we will debit overhead and credit COGS (decreasing it)

when it was overapplied, as the applied cost was higher than actual cost.

If it was underapplied, we will credit overhead and debit COGS (thus, increasing it) to increase the applied cost up to the real cost.