Account balances are as follows: $\begin{array}{lc}
\text { Manufacturing overhead } & \$ 240,000 \text { underapplied } \
\text { Work in process } & 100,000 \
\text { Finished goods } & 300,000 \
\text { Cost of goods sold } & 800,000
\end{array}$
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),what would be the balance of cost of goods sold after adjustment?
A)$640,000
B)$960,000
C)$1,040,000
D)$1,440,000

Question

Account balances are as follows: $\begin{array}{lc}
\text { Manufacturing overhead } & \$ 240,000 \text { underapplied } \
\text { Work in process } & 100,000 \
\text { Finished goods } & 300,000 \
\text { Cost of goods sold } & 800,000
\end{array}$ 
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),what would be the balance of cost of goods sold after adjustment?
A)$640,000
B)$960,000
C)$1,040,000
D)$1,440,000

Quizplus · Accepted Answer

The total underapplied overhead of $240,000 is allocated based on the ending balances of work in process, finished goods, and cost of goods sold. The proportions are calculated as follows: Work in process ($100,000) / Total ($1,200,000) = 1/12, Finished goods ($300,000) / Total ($1,200,000) = 1/4, and Cost of goods sold ($800,000) / Total ($1,200,000) = 2/3. Therefore, 2/3 of the $240,000 underapplied overhead is allocated to cost of goods sold, which is $160,000 ($240,000 * 2/3). Adding this to the original cost of goods sold ($800,000) gives the adjusted balance of $960,000.

Account Balances Are as Follows If Underapplied or Overapplied Overhead Is Material and Is Allocated