Oak Bluff Company incorrectly assigns a $50,000 overhead item to selling expense. Borden has more inventory at the end of the year than at the beginning of the year. The result of this error will be to:
A) Understate inventory and profit for the year
B) Have no effect on inventory and profit for the year
C) Overstate inventory and profit for the year
D) Understate inventory but have no effect on profit for the year

Question

Quizplus · Accepted Answer

Assigning overhead to selling expense instead of inventory will cause the inventory value to be understated. Since inventory is understated, the cost of goods sold will be lower, leading to an overstatement of profit for the year.

Oak Bluff Company Incorrectly Assigns a $50,000 Overhead Item to Selling