An underallocation of manufacturing overhead is typically corrected by increasing Cost of Goods Sold on the income statement.

Question

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When there is an underallocation of manufacturing overhead, it means that the actual overhead costs were higher than what was applied or allocated to the products. To correct this, the additional overhead costs need to be accounted for, which is typically done by increasing the Cost of Goods Sold (COGS) on the income statement. This adjustment ensures that the reported COGS more accurately reflects the actual costs incurred in producing the goods sold.

An Underallocation of Manufacturing Overhead Is Typically Corrected by Increasing