In computing its predetermined overhead rate,Stiles Company inadvertently left its indirect labor costs out of the computation.This oversight will cause:
A) Manufacturing Overhead to be overapplied.
B) the Cost of Goods Manufactured to be understated.
C) the debits to the Manufacturing Overhead account to be understated.
D) the ending balance in Work-in-Process to be overstateD.
The omission of an overhead item will cause the application to be less than it should be and Cost of Goods Manufactured will be less than it should be.

Question

Quizplus · Accepted Answer

The omission of indirect labor costs from the computation of the predetermined overhead rate will result in an understatement of the manufacturing overhead applied to production. As a result, the Cost of Goods Manufactured will also be understated since it includes all costs associated with the production of goods, including manufacturing overhead costs. Therefore, B is the correct answer as the Cost of Goods Manufactured will be understated.

In Computing Its Predetermined Overhead Rate,Stiles Company Inadvertently Left Its