Readville Company inadvertently assigns a $50,000 advertising expense to Manufacturing Overhead. Readville Company has more inventory at the end of the year than at the beginning of the year. The result of this error will be to:

Question

Quizplus · Accepted Answer

Assigning advertising expense to Manufacturing Overhead will increase the overhead allocated to products, thereby increasing the cost of goods manufactured and ending inventory values. Since more costs are capitalized in inventory, less expense is recognized in the current period, leading to an overstatement of both inventory and profit for the year.

Readville Company Inadvertently Assigns a $50,000 Advertising Expense to Manufacturing