An underallocation of manufacturing overhead is typically corrected by decreasing cost of goods sold on the income statement.

Question

Quizplus · Accepted Answer

An underallocation of manufacturing overhead occurs when the actual manufacturing overhead costs incurred are higher than the applied overhead costs. This results in an overstatement of the cost of goods sold (COGS). To correct this, the COGS needs to be increased, not decreased. This is done by adjusting the ending inventory and/or COGS account.

An Underallocation of Manufacturing Overhead Is Typically Corrected by Decreasing