Using the following information: $$\begin{array} { | l | l | }
\hline \text { Cost of Goods Sold for the year } & \$ 840,000 \
\hline \text { Ending Finished Goods } & \$ 100,000 \
\hline \text { Ending Work in Process } & \$ 60,000 \
\hline \text { Overapplied manufacturing overhead } & \$ 40,000 \
\hline
\end{array}$$ Assuming overapplied overhead is considered material, using the preferred method, what would be the adjustment to Cost of Goods Sold to close the overapplied overhead?
A)A credit of $33,600.
B)A debit of $40,000.
C)A credit of $40,000.
D)A debit of $33,600.

Question

Using the following information: $$\begin{array} { | l | l | } 
\hline \text { Cost of Goods Sold for the year } & \$ 840,000 \
\hline \text { Ending Finished Goods } & \$ 100,000 \
\hline \text { Ending Work in Process } & \$ 60,000 \
\hline \text { Overapplied manufacturing overhead } & \$ 40,000 \
\hline
\end{array}$$ Assuming overapplied overhead is considered material, using the preferred method, what would be the adjustment to Cost of Goods Sold to close the overapplied overhead?
A)A credit of $33,600.
B)A debit of $40,000.
C)A credit of $40,000.
D)A debit of $33,600.

Quizplus · Accepted Answer

The preferred method for closing overapplied overhead is to allocate it proportionally between Cost of Goods Sold, Finished Goods, and Work in Process. The proportion for Cost of Goods Sold is calculated as $840,000 / ($840,000 + $100,000 + $60,000) = 0.84$. Therefore, the adjustment to Cost of Goods Sold is $40,000 * 0.84 = $33,600$, which is a credit.

Using the Following Information Assuming Overapplied Overhead Is Considered Material, Using the Preferred Method