The journal entry to dispose of overapplied or underapplied overhead, if overhead is applied based on direct labor hours, would include a credit to:

Question

Quizplus · Accepted Answer

Overapplied or underapplied overhead is an adjustment made to the overhead account to reconcile the actual overhead costs incurred with the overhead costs applied to jobs during the period. If overhead is applied based on direct labor hours, the adjustment will be made to the Factory Overhead Control account. The entry to dispose of overapplied or underapplied overhead will debit or credit Factory Overhead Control and credit or debit Cost of Goods Sold (depending on whether overhead was overapplied or underapplied). In this case, since overhead was applied based on direct labor hours, there is no need to make any adjustments to Work-in-Process Inventory or Finished Goods Inventory, so options A and C are incorrect. Materials Inventory is also irrelevant since the question does not mention any issue related to materials. Therefore, the correct answer is B, Cost of Goods Sold.

The Journal Entry to Dispose of Overapplied or Underapplied Overhead