Stalk Products has $27,000 of underapplied overhead at the end of the year. Management has asked you what the impact on income will be if you prorate the underapplied overhead to the appropriate accounts. What will you tell them?

Question

Quizplus · Accepted Answer

Prorating underapplied overhead typically allocates costs to work in process, finished goods, and cost of goods sold, which can result in a smaller impact on cost of goods sold and thus higher income compared to closing it entirely to cost of goods sold.

Stalk Products Has $27,000 of Underapplied Overhead at the End