Question

Before prorating the manufacturing overhead costs at the end of 2016, the Cost of Goods Sold and Finished Goods Inventory had applied overhead costs of $57,700 and $22,000 in them, respectively. There was no Work-in-Process at the beginning or end of 2016. During the year, manufacturing overhead costs of $76,000 were actually incurred. The balance in the Applied Manufacturing Overhead was $79,700 at the end of 2016. If the under- or overapplied overhead is prorated between Cost of Goods Sold and the inventory accounts, how much will be the Cost of Goods Sold after the proration?

Answer 1

Answer:

Cost of Goods Sold will decrease by $2,679 after proration.

Explanation:

Under-applied or over applied overhead:

= Overhead incurred - Overhead applied

= $76,000 - $79,700

= (-$3,700)

Therefore, the Cost of Goods Sold after the proration:

= (over applied overhead × Overhead applied to COGS) ÷ Total overhead applied to cost of goods sold and finished goods

= ($3,700 × $57,700) ÷ ($57,700 + $22,000)

= $213,490,000 ÷ $79,700

= $2,679

Hence, the Cost of Goods Sold will decrease by $2,679 after proration.