Question

The actual manufacturing overhead incurred at Hogans Corporation during April was $59,000, while the manufacturing overhead applied to Work in Process was $74,000. The company's Cost of Goods Sold was $289,000 prior to closing out its Manufacturing Overhead account. The company closes out its Manufacturing Overhead account to Cost of Goods Sold. Which of the following statements is true?
A. Manufacturing overhead was overapplied by $15,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $274,000
B. Manufacturing overhead was underapplied by $15,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $274,000
C. Manufacturing overhead was overapplied by $15,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $304,000
D. Manufacturing overhead was underapplied by $15,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $304,000

Answer 1

Answer:

A. Manufacturing overhead was overapplied by $15,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $274,000

Explanation:

Budgeted Overheads are usually used to compute  the Cost of Goods Sold bu Manufacturing Firms.This is because the use of Actual overheads delays the product costing process.

OverApplied or UnderApplied = Applied overheads-Actual Overheads

and if:

Applied overheads>Actual Overheads we have Overapplied Overheads

Applied overheads<Actual Overheads we have Underapplied Overheads

Overapplied Overheads reduce the cost of Overhead Account and Consequently reduce cost of Sales.

Underapplied Overheads increase the cost of Overhead Account and Consequently increase cost of Sales.