Cost of goods sold needs to be debited at year-end when the manufacturing overhead is overallocated in order to clear the overhead account to zero.

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When manufacturing overhead is overallocated, it means that the overhead applied to products exceeds the actual overhead costs incurred. Instead of debiting cost of goods sold, the overallocated amount is typically credited to cost of goods sold or allocated between work in process, finished goods, and cost of goods sold based on their relative sizes, thereby reducing the expense and increasing income.

Cost of Goods Sold Needs to Be Debited at Year-End