During 2013, a company incurs $500 000 of manufacturing overhead costs and allocates out $460 000 of manufacturing overhead costs. At year- end, the adjustment entry needed to clear the overhead balance to zero will include a debit to Cost of sales.

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The adjustment entry to clear the overhead balance to zero will include a debit to Cost of Sales because the company has overallocated manufacturing overhead costs. The overallocated amount of $40,000 ($500,000 - $460,000) will be debited to Cost of Sales to reduce the cost of goods sold for the period.

During 2013, a Company Incurs $500 000 of Manufacturing Overhead