Account balances from the Boilermakers Company are as follows: $\begin{array}{lr}
\text { Manufacturing Overhead } & \$ 240,000 \text { underapplied } \
\text { Work in Frocess } & 100,000 \
\text { Finished Goods } & 300,000 \
\text { Cost of Goods Sold } & 800,000
\end{array}$
If underapplied or overapplied overhead is material and is allocated to Work in Process, Finished Goods, and Cost of Goods Sold (based on ending account balances), Cost of Goods Sold after adjustment would have a balance of
A)$ 960,000.
B)$ 640,000.
C)$1,040,000.
D)$1,440,000.

Question

Quizplus · Accepted Answer

Underapplied overhead is allocated to Work in Process, Finished Goods, and Cost of Goods Sold based on ending account balances. The total ending account balances are $100,000 + $300,000 + $800,000 = $1,200,000. The underapplied overhead of $240,000 is allocated to these accounts in proportion to their ending account balances. The allocation to Cost of Goods Sold is $240,000 x $800,000/$1,200,000 = $160,000. The adjusted balance of Cost of Goods Sold is $800,000 + $160,000 = $960,000.

Account Balances from the Boilermakers Company Are as Follows If Underapplied or Overapplied Overhead Is Material and Is Allocated