Question

When underapplied or overapplied manufacturing overhead is prorated, amounts can be assigned to which of the following accounts? a. Raw-Material Inventory, Manufacturing Overhead, and Direct Labor. b. Cost of Goods Sold, Work-in-Process Inventory, and Finished-Goods Inventory. c. Work-in-Process Inventory, Raw-Material Inventory, and Cost of Goods Sold. d. Raw-Material Inventory, Finished-Goods Inventory, and Cost of Goods Sold. e. Raw-Material Inventory, Work-in-Process Inventory, and Finished-Goods Inventory.

Answer 1

Answer:

b. Cost of Goods Sold, Work-in-Process Inventory, and Finished-Goods Inventory.

Explanation:

As for the information, we know

Under applied or over applied overheads can be applied to inventory or inventory cost which includes overheads.

Option a is incorrect as raw material inventory do not include any overheads, therefore, no over or under applied overheads can be allocated to raw material inventory.

In option b all items given include some value of overheads, thus, it is feasible option.

In option c again raw material inventory is included which makes it invalid.

Same in option d and option e, as raw material inventory do not require any overheads, if any processing is done to raw material and then charged to overheads will become work in process.

Therefore, option b is correct.