There are two acceptable methods for closing out any balance of under- or overapplied overhead. One method involves allocation, whereas the other closes any balance directly to
A)Finished Goods Stock.
B)Cost of Goods Sold.
C)Cost of Goods Manufactured.
D)Work in Process Stock.

Question

Quizplus · Accepted Answer

The most appropriate method for closing out any balance of under- or overapplied overhead is to allocate it to Cost of Goods Sold. This is because any overhead costs that are not applied to products during the manufacturing process are considered indirect costs that must be included in the cost of goods sold when the product is sold. Direct costs are included in the cost of goods manufactured and finished goods inventories. Therefore, choice (B) is the most appropriate option for closing out the balance of under- or overapplied overhead.

There Are Two Acceptable Methods for Closing Out Any Balance