Which of the following is correct with respect to closing out overapplied manufacturing overhead to Cost of Goods Sold versus closing it out to Cost of Goods Sold and Finished Goods and Work-in-Process inventories?

Question

Quizplus · Accepted Answer

Closing out overapplied manufacturing overhead to Cost of Goods Sold will increase operating income because it reduces the expenses reported in the period. If the overapplied overhead is allocated to Finished Goods and Work-in-Process inventories, it will increase the value of those inventory accounts but will not affect the expenses reported in the period. The balance in the Work-in-Process account will be the same under either method, as the overapplied overhead will be allocated to the work-in-process inventory. Therefore, C is the correct choice. Option A and D are incorrect because they provide incorrect or incomplete information. Option B is incorrect because it suggests that the balance in the work-in-process account will be the same regardless of how the overapplied overhead is closed out, which is not true.

Which of the Following Is Correct with Respect to Closing