At the current year-end,Simply Company found that its overhead was underapplied by $2,500,and this amount was not considered material.Based on this information,Simply should
A)Close the $2,500 to Cost of Goods Sold.
B)Close the $2,500 to Finished Goods Inventory.
C)Do nothing about the $2,500,since it is not material,and it is likely that overhead will be overapplied by the same amount next year.
D)Carry the $2,500 to the income statement as "Other Expense".
E)Carry the $2,500 to the next period.

Question

Quizplus · Accepted Answer

The underapplied overhead should be closed to Cost of Goods Sold in order to accurately reflect the true cost of goods sold for the current period. Simply leaving it unadjusted or carrying it forward could distort future financial statements. Since the amount of underapplied overhead is not considered material, it is appropriate to close it directly to Cost of Goods Sold rather than creating a separate account for it.

At the Current Year-End,Simply Company Found That Its Overhead Was