Question

If overapplied or underapplied overhead is material, it should be disposed of by allocating it to: Select one: a. Cost of goods sold and finished goods inventory. b. Finished goods inventory and work in process inventory. c. work in process inventory, finished goods inventory, and cost of goods sold. d. work in process inventory. e. Raw materials inventory, work in process inventory, and finished goods inventory.

Answer 1

If overapplied or underapplied overhead is material, it should be disposed of by allocating it to Cost of goods sold and finished goods inventory.

Option A

Explanation:

Fixed Overhead expenses are allotted to on the basis of predetermined overhead rate to each unit. Sometimes overhead expenses estimated and actually incurred have differences.

If the actual overhead is more than overhead applied to production than it is called under applied overhead. When actual overhead is less than applied overhead than it is called over applied overhead.

Balance of difference of these overhead is debited or credited to Cost of goods sold of company.