A material amount of overapplied or underapplied overhead should be disposed of by allocating it to:
A) Cost of goods sold and finished goods.
B) Finished goods and goods in process.
C) Goods in process, finished goods, and cost of goods sold.
D) Goods in process.
E) Raw materials, goods in process, and finished goods.

Question

Quizplus · Accepted Answer

Overapplied or underapplied overhead should be allocated to goods in process, finished goods, and cost of goods sold in order to adjust the value of these accounts and accurately reflect the actual overhead costs for each. Allocating it to only one account, such as cost of goods sold, may distort the profitability of the company. Allocating it to all three accounts ensures that the cost of goods sold, inventory, and gross profit are all adjusted appropriately.

A Material Amount of Overapplied or Underapplied Overhead Should Be