Clemmens Company applies overhead based on direct labor cost.Estimated overhead and direct labor costs for the year were $112,500 and $125,000,respectively.During the year,actual overhead was $107,400 and actual direct labor cost was $120,000.The entry to close the over- or underapplied overhead at year-end,assuming an immaterial amount,would include:
A)A debit to Cost of Goods Sold for $600.
B)A credit to Factory Overhead for $600.
C)A credit to Finished Goods Inventory for $600.
D)A debit to Work in Process Inventory for $600.
E)A credit to Cost of Goods Sold for $600.

Question

Quizplus · Accepted Answer

The entry to close the over- or underapplied overhead at year-end, assuming an immaterial amount, would include a credit to Cost of Goods Sold for $600. This is because the actual overhead was less than the applied overhead, resulting in an underapplied overhead of $600. The underapplied overhead is closed to Cost of Goods Sold to adjust the cost of goods sold for the actual overhead incurred.

Clemmens Company Applies Overhead Based on Direct Labor Cost