At the end of the year, Metro Company has an unadjusted credit balance in the Manufacturing Overhead account of $950. Which of the following is the year-end adjusting entry needed to clear the balance to zero?

Question

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The Manufacturing Overhead account is used to accumulate indirect manufacturing costs, such as rent, utilities, and equipment maintenance. These costs are not directly traceable to specific products or jobs, so they are allocated to products using a predetermined overhead rate based on direct labor or machine hours. At the end of the year, the balance in the Manufacturing Overhead account represents the difference between the sum of actual indirect costs incurred during the year and the sum of indirect costs allocated to products using the predetermined overhead rate. If the actual indirect costs are greater than the allocated indirect costs, there will be a credit balance in the Manufacturing Overhead account, indicating that more indirect costs were charged to products than were actually incurred. To clear this balance to zero, the year-end adjusting entry should debit Manufacturing Overhead for the credit balance amount ($950) and credit Cost of Goods Sold for the same amount. This will reduce the inventory value and increase the cost of goods sold for the year by the amount of the overallocated indirect costs. Choice C is the correct answer.

At the End of the Year, Metro Company Has an Unadjusted