There are two acceptable methods for closing out any balance of underapplied or overapplied manufacturing overhead. One method involves allocation of the balance among several accounts, whereas the other closes any balance directly to:
A)Finished Goods inventory.
B)Cost of Goods Sold.
C)Cost of Goods Manufactured.
D)Work in Process inventory.

Question

Quizplus · Accepted Answer

The best choice for closing out any balance of underapplied or overapplied manufacturing overhead is to directly close the balance to Cost of Goods Sold. This method ensures that the entire balance is accounted for and does not carry over to future periods. Allocating the balance among several accounts can result in confusion and difficulty in tracking the allocation.

There Are Two Acceptable Methods for Closing Out Any Balance