If it is a material amount, overapplied or underapplied overhead should be disposed of by allocating it to:
A) Cost of goods sold and finished goods inventory.
B) Finished goods inventory and goods in process inventory.
C) Goods in process inventory, finished goods inventory, and cost of goods sold.
D) Goods in process inventory.
E) Raw materials inventory, goods in process inventory, and finished goods inventory.

Question

Quizplus · Accepted Answer

Overapplied or underapplied overhead should be allocated to all three inventory accounts (goods in process, finished goods, and cost of goods sold) to ensure that the over/under applied amount is properly reflected in the costs of goods sold and inventory balances. Allocating it only to one inventory account would result in incomplete and inaccurate accounting records. Therefore, Choice C is the most appropriate answer.

If It Is a Material Amount, Overapplied or Underapplied Overhead