If a manufacturing firm ends the year with underapplied overhead, one method of treatment is
A) debit manufacturing overhead, credit cost of goods sold.
B) debit cost of goods sold, credit manufacturing overhead.
C) debit work in process, credit manufacturing overhead.
D) debit finished goods inventory, credit manufacturing overhead.

Question

Quizplus · Accepted Answer

Underapplied overhead means that the actual manufacturing overhead costs were higher than the overhead costs allocated to products. To adjust for this at the end of the year, the firm increases the cost of goods sold (debiting cost of goods sold) and decreases the manufacturing overhead account (crediting manufacturing overhead), thereby reflecting the actual costs incurred.

If a Manufacturing Firm Ends the Year with Underapplied Overhead