Question

During the current accounting period, Billfort applied $14,500 of estimated overhead cost to production. Actual overhead costs were $14,325. Assuming that the balance in the Manufacturing Overhead is insignificant, the recognition of the transaction to close that account will:

Multiple Choice

• a. Decrease cost of goods sold and increase stockholders’ equity.

• b. Increase cost of goods sold.

• c. Decrease stockholders' equity.

• d. Decrease total assets and total liabilities.

Answer 1

The answer to the above question is Option B: Increase in cost of goods sold

The Estimated cost was 14500$ and actual applied was 14325$ which means the overhead was underapplied and the as the difference is immaterial (14500-14325=175) the account is closed by debit to cost of goods sold which will leads to increase in cost of goods sold

Option A and C is not possible as the overhead application wont impact the stockholders equity

Option D Overheads are directly relating to manufacturing costs hence it wont be impact total assets and total liabilities directly