At the end of the year, Harding Company had a balance in Manufacturing Overhead of $26,000, and a balance in Manufacturing Overhead Applied of $23,000. When the Manufacturing Overhead account is closed, the Cost of Goods Sold account will:

Question

Quizplus · Accepted Answer

Since the balance in Manufacturing Overhead is greater than the balance in Manufacturing Overhead Applied, it means that more overhead was actually incurred than was applied to production. This difference of $3,000 is considered underapplied overhead and needs to be adjusted before closing the Manufacturing Overhead account. The adjustment is made by increasing Cost of Goods Sold by the amount of underapplied overhead, which is $3,000. Therefore, the correct answer is A, Increase by $3,000.

At the End of the Year, Harding Company Had a Balance