Estimated overhead and direct labor costs for the year were $250,000 and $125,000, respectively. During the year, actual overhead was $248,000 and actual direct labor cost was $123,000. The entry to close the over- or under-applied overhead at year-end, assuming an immaterial amount, would include:

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The actual overhead costs were less than the estimated overhead costs, resulting in an underapplied overhead of $2,000. To close the underapplied overhead, a debit is made to Cost of Goods Sold for $2,000 to increase the cost of goods sold and a credit is made to Factory Overhead for $2,000 to reduce the balance in the Factory Overhead account.

Estimated Overhead and Direct Labor Costs for the Year Were