The entry to dispose of the underapplied or overapplied overhead cost for the month would include:
A) a debit of $50 to Cost of Goods Sold.
B) a debit of $50 to Manufacturing Overhead.
C) a debit of $5,500 to Manufacturing Overhead.
D) a credit of $5,500 to Cost of Goods Sold.

Question

Quizplus · Accepted Answer

Underapplied or overapplied overhead costs are disposed of by making an adjusting entry in the manufacturing overhead account. Since the overhead applied was less than the actual overhead incurred, the Cost of Goods Sold account should be debited to decrease the net income by the amount of underapplied overhead. Therefore, a debit of $50 to Manufacturing Overhead (B) is needed to decrease its balance to zero, and a credit of $50 to Cost of Goods Sold (the opposite account) is needed to adjust for the underapplied overhead. The other options given do not accurately reflect the proper accounting treatment for disposing of underapplied or overapplied overhead.

The Entry to Dispose of the Underapplied or Overapplied Overhead