Which of the following approaches spreads underallocated or overallocated overhead among ending balances in Work-in-Process Control, Finished Goods Control, and Cost of Goods Sold?
A) the adjusted allocation-rate approach
B) the proration approach
C) the write-off variances to cost of goods sold approach
D) the reinstatement approach

Question

Quizplus · Accepted Answer

The proration approach spreads underallocated or overallocated overhead among ending balances in Work-in-Process Control, Finished Goods Control, and Cost of Goods Sold based on their respective ending balances. This method is commonly used for small or non-complex production processes where the allocation rate is not continuously changing. The adjusted allocation-rate approach adjusts the allocation rate for the next period, the write-off variances to cost of goods sold approach writes off the variances directly to COGS, and the reinstatement approach reinstates underallocated or overallocated overhead to the subsequent periods.

Which of the Following Approaches Spreads Underallocated or Overallocated Overhead