If overapplied or underapplied overhead is material, it should be disposed of by allocating it to:
A) Work in process inventory.
B) Finished goods inventory and work in process inventory.
C) Work in process inventory, finished goods inventory, and cost of goods sold.
D) Raw materials inventory, work in process inventory, and finished goods inventory.
E) Cost of goods sold and finished goods inventory.

Question

Quizplus · Accepted Answer

Overapplied or underapplied overhead represents a difference between the actual overhead costs incurred and the overhead costs applied to production. This difference should be allocated to work in process inventory, finished goods inventory, and cost of goods sold in proportion to the amount of overhead applied to each account during the period. This ensures that the overapplied or underapplied overhead is correctly reflected in the cost of goods sold and the inventory accounts. Therefore, option C is the best choice as it includes all the relevant inventory accounts and cost of goods sold.

If Overapplied or Underapplied Overhead Is Material, It Should Be