COST ACCOUNTING
JOB ORDER COSTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Debit cost of goods sold, credit cost of goods manufactured
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Debit cost of goods sold, credit manufacturing overhead
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Debit manufacturing overhead, credit cost of goods sold
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Debit cost of goods manufactured, credit cost of gods sold
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Detailed explanation-1: -Underapplied overhead is normally reported as a prepaid expense on a company’s balance sheet and is balanced by inputting a debit to the cost of goods sold (COGS) section by the end of the year.
Detailed explanation-2: -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-3: -The most common accounting treatment for underapplied manufacturing overhead is to close it out to cost of goods sold. This reflects the fact that the actual cost to produce the goods sold was higher than anticipated.
Detailed explanation-4: -Underapplied overhead refers to the amount of actual factory overhead costs that are not allocated to units of production. This situation arises when the standard allocation amount per unit of production does not equate to the actual amount of overhead costs incurred in a reporting period.