Before prorating the manufacturing overhead costs at the end of 2020, the Cost of Goods Sold and Finished Goods Inventory accounts had applied overhead costs of $57,500 and $20,000 in them, respectively. There was no Work-in-Process at the beginning or end of 2020. During the year, manufacturing overhead costs of $74,000 were actually incurred. The balance in the Applied Manufacturing Overhead was $77,500 at the end of 2020.
- If the under or overapplied overhead is prorated between Cost of Goods Sold and the inventory accounts, how much will be allocated to the Finished Goods Inventory? (rounded to the nearest whole dollar)
A) $903.
B) $1,217.
C) $1,283.
D) $2,597.

Question

Quizplus · Accepted Answer

The total applied overhead is $77,500, and the actual overhead is $74,000, resulting in an overapplied overhead of $3,500. The proportion of overhead in Finished Goods Inventory is $20,000 / $77,500. Allocating $3,500 based on this proportion gives approximately $903 to Finished Goods Inventory.

Before Prorating the Manufacturing Overhead Costs at the End of 2020