If manufacturing overhead has been underapplied during the year the adjustment at the end of the year will show a(n)
A)increase to Manufacturing Overhead.
B)decrease to Cost of Goods Sold.
C)increase to Work in Process Inventory.
D)increase to Cost of Goods Sold.

Question

Quizplus · Accepted Answer

If manufacturing overhead has been underapplied, it means that the actual overhead incurred is more than the overhead allocated to production. As a result, the cost of goods sold is understated because it includes only the allocated overhead, and not the actual overhead. Therefore, to adjust for this underapplied overhead, a credit is made to Manufacturing Overhead, and a debit is made to Cost of Goods Sold, which increases the cost of goods sold to reflect the actual overhead incurred. Therefore, the correct answer is D, increase to Cost of Goods Sold.

If Manufacturing Overhead Has Been Underapplied During the Year the Adjustment