Niebla Corporation has provided data concerning the companys Manufacturing Overhead account for the month of July. Prior to the closing of the overapplied or underapplied balance to Cost of Goods Sold, the total of the debits to the Manufacturing Overhead account was $72, 000 and the total of the credits to the account was $77, 000. Which of the following statements is true?

INTRODUCTION TO COST ACCOUNTING

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

Niebla Corporation has provided data concerning the company’s Manufacturing Overhead account for the month of July. Prior to the closing of the overapplied or underapplied balance to Cost of Goods Sold, the total of the debits to the Manufacturing Overhead account was $72, 000 and the total of the credits to the account was $77, 000. Which of the following statements is true?

A	Manufacturing overhead applied to Work in Process for the month was $72, 000.
B	Actual manufacturing overhead for the month was $72, 000.
C	Manufacturing overhead for the month was underapplied by $5, 000.
D	Manufacturing overhead transferred from Finished Goods to Cost of Goods Sold during the month was $77, 000.

Explanation:

Detailed explanation-1: -At the end of the year, manufacturing overhead has been overapplied. What occurred to create this situation? The actual manufacturing overhead costs were less than the manufacturing overhead assigned to jobs. The company incurred more manufacturing overhead costs than the manufacturing overhead assigned to jobs.

Detailed explanation-2: -When overhead has been overapplied, the proper accounting is to debit the manufacturing overhead cost pool and credit the cost of goods sold in the amount of the overapplication. Doing so results in the actual amount of overhead incurred being charged through the cost of goods sold.

Detailed explanation-3: -If manufacturing overhead has a debit balance, the overhead is underapplied, and the resulting amount in cost of goods sold is understated. The adjusting entry is: If manufacturing overhead has a credit balance, the overhead is overapplied, and the resulting amount in cost of goods sold is overstated.

Detailed explanation-4: -The adjustment for underapplied overhead increases Cost of Goods Sold (and the two inventories) whereas the adjustment for overapplied overhead decreases Cost of Goods Sold (and the two inventories).

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