In computing its predetermined overhead rate, Stiles Company inadvertently left its indirect labor costs out of the computation. This oversight will cause:
A) Manufacturing Overhead to be overapplied.
B) the Cost of Goods Manufactured to be understated.
C) the debits to the Manufacturing Overhead account to be understated.
D) the ending balance in Work-in-Process to be overstated.

Question

Quizplus · Accepted Answer

The Cost of Goods Manufactured will be understated because the indirect labor costs, which are part of manufacturing overhead, were not included in the predetermined overhead rate, leading to an underallocation of overhead costs to products.

In Computing Its Predetermined Overhead Rate, Stiles Company Inadvertently Left