Under what circumstance should the amount of overallocation or underallocation be reflected as an adjustment to cost of goods sold?

Question

Quizplus · Accepted Answer

The amount of overallocation or underallocation should be reflected as an adjustment to cost of goods sold if most of the inventory produced during the period has been sold. This is because the overallocated or underallocated amount represents the difference between the actual overhead costs incurred and the overhead costs allocated to the inventory produced. If most of the inventory has been sold, then the overallocated or underallocated amount would have affected the cost of goods sold for those items. However, if most of the inventory has not been sold, then the overallocated or underallocated amount would still be sitting in inventory and would not have affected the cost of goods sold yet. Therefore, it would not be appropriate to adjust cost of goods sold in that circumstance.

Under What Circumstance Should the Amount of Overallocation or Underallocation