If jobs have been undercosted due to underallocation of manufacturing overhead, then cost of goods sold (COGS)is too low and which of the following corrections must be made?

Question

Quizplus · Accepted Answer

The correct correction for underallocation of manufacturing overhead is to increase COGS for the amount of the underallocation. This is because the actual manufacturing overhead costs were higher than allocated, leading to an understatement of COGS. By increasing COGS for the amount of the underallocation, it will more accurately reflect the actual cost of goods sold. Option A is incorrect because decreasing COGS will further understate the actual costs. Option B is incorrect because doubling the amount of underallocation is an incorrect and excessive correction. Option C is incorrect because decreasing COGS for twice the amount of underallocation is an incorrect and excessive correction.

If Jobs Have Been Undercosted Due to Underallocation of Manufacturing