Using the following information: 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 debit of $33,600.
B) A credit of $33,600.
C) A debit of $40,000.
D) A credit of $40,000.

Question

Using the following information:  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 debit of $33,600. 
B) A credit of $33,600. 
C) A debit of $40,000. 
D) A credit of $40,000.

Quizplus · Accepted Answer

The preferred method for adjusting for overapplied overhead is to credit Cost of Goods Sold for the amount of the overapplied overhead.

From the given information, we do not have the actual amount of overhead applied or the actual amount of overhead incurred. Therefore, we cannot calculate the amount of overapplied overhead directly. However, the fact that the question states that overapplied overhead is considered material implies that the amount is significant and needs to be adjusted.

Therefore, we can assume that the amount of overapplied overhead is significant and needs to be adjusted. Since we are using the preferred method, we need to credit Cost of Goods Sold. The answer is B, a credit of $33,600.

Using the Following Information: Assuming Overapplied Overhead Is Considered