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A- Is to cost of goods sold only.
B- Is to finished goods inventory only.
C- Depends on the significant of the amount.
D- Is apportioned to cost of goods sold and finished goods inventory.
The right answer Is # C- Depends on the significant of the amount
C- Depends on the significant of the amount
C is the perfect answer in this regard because disposition of under applied or over applied overhead of manufacturing stage definitely involves in all kinds inventory i.e. work in process as well as Finished goods which are part of Cost of Goods of Sold
C. depends on the significance of the amount involved.
If the amount is immaterial, it is closed to Cost of Goods Sold.
If the amount is significant, it should be allocated among the accounts containing applied overhead: Work in Process Inventory, Finished Goods Inventory, and Cost of Goods Sold.
The Over or Under Applied manufacturing Overhead is difference between Manufacturing Cost applied to work in progress & manufacturing overhead actually incurred.
Over applied Manufacturing overhead When,Applied Overhead>actual Overhead
Under Applied Manufacturing Overhead When,Applied Overhead<actual Overhead
It can be disposed by two method
1.When the the amount of Over/Under Absorbed over head in immaterial then the entire amount is
Under Applied
Cost of goods sold Dr
Manufacturing Over head
Over Applied
Manufacturing Overhead Dr
Cost of goods sold
2.if the value of Over/Under applied over head is material than it is allocated proportionately to Finished Goods,WIP & Cost of goods sold
Under Applied
Cost of goods sold Dr
WIP Dr
Finished goods Dr
Manufacturing Over head
Over Applied
Manufacturing Over head Dr
Cost of goods sold
WIP
Finished goods
Regards
Ajay
FC
Alpha Oman LLC
