During 2014, a company incurred $500,000 of manufacturing overhead costs and allocated $460,000 of manufacturing overhead costs. At year-end, the adjustment entry needed to clear the overhead balance to zero will include a debit to Cost of Goods Sold.

Question

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The company under-allocated overhead by $40,000 ($500,000 incurred - $460,000 allocated). To clear this, they need to debit Cost of Goods Sold to increase it by the under-allocated amount.

During 2014, a Company Incurred $500,000 of Manufacturing Overhead Costs