Question

The actual manufacturing overhead incurred at Liberty Industries during May was $62,600, while the manufacturing overhead applied to Work-in-Process was $76,400. The company's Cost of Goods Sold was $291,400 prior to closing out its Manufacturing Overhead account. The company closes out its Manufacturing Overhead account to Cost of Goods Sold. Which of the following statements is true?

Multiple Choice

• Manufacturing overhead was overapplied by $13,800; Cost of Goods Sold after closing out the Manufacturing Overhead account is $277,600.

• Manufacturing overhead was underapplied by $13,800; Cost of Goods Sold after closing out the Manufacturing Overhead account is $277,600.

• Manufacturing overhead was overapplied by $13,800; Cost of Goods Sold after closing out the Manufacturing Overhead account is $305,200.

• Manufacturing overhead was underapplied by $13,800; Cost of Goods Sold after closing out the Manufacturing Overhead account is $305,200.

Answer 1

• Overhead applied = $ 76400
• Actual Overhead = $ 62600
• Overhead applied is MORE than Actual Overhead = OVER APPLIED
• Overheads are OVER APPLIED by $ 76400 – 62600 = $ 13,800
• Overapplied Overheads are DEDUCTED from unadjusted Cost of Goods Sold.
• Adjusted Cost of Goods Sold = $ 291400 – 13800
  = $ 277,600
• Correct Answer = Option #1
  Manufacturing overhead was overapplied by $13,800; Cost of Goods Sold after closing out the Manufacturing Overhead account is $277,600.