If the underapplied factory overhead amount is immaterial, it is transferred to Cost of Goods Sold at the end of the fiscal year.

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If the amount of underapplied factory overhead is considered immaterial, it is typically transferred to Cost of Goods Sold at the end of the fiscal year. This is done to simplify calculations and avoid having to carry forward a small amount of underapplied overhead to the next period. However, if the amount is material, it must be allocated among the various accounts affected by overhead, such as Work- in- Process, Finished Goods, and Cost of Goods Sold, in proportion to the amounts of overhead allocated to those accounts during the year.

If the Underapplied Factory Overhead Amount Is Immaterial, It Is