If over- or underapplied factory overhead would materially distort net income if the entire amount was charged to Cost of Goods Sold,it should be:
A)Carried forward in the overhead control account from year to year.
B)Eliminated by changing the predetermined factory overhead rate in subsequent years.
C)Apportioned among the work in process inventory,the finished goods inventory,and the cost of goods sold.
D)Treated as a special gain or loss occurring during the year.

Question

Quizplus · Accepted Answer

If over- or underapplied factory overhead would materially distort net income, it should be apportioned among the work in process inventory, the finished goods inventory, and the cost of goods sold. This is because the over- or underapplied overhead is a cost incurred in the production process and has an impact on the value of the inventory. By allocating the amount to the inventory accounts, the impact on net income is more accurately reflected. Carrying the amount forward, changing the predetermined factory overhead rate, or treating it as a special gain or loss would not properly reflect the impact on inventory values and could distort net income in subsequent periods.

If Over- or Underapplied Factory Overhead Would Materially Distort Net