Final answer:
The claim that overapplied or underapplied overhead is adjusted to raw materials purchased is false. These adjustments typically affect Cost of Goods Sold, Finished Goods Inventory, and Work In Process Inventory to ensure accurate reporting of costs and expenses.
Step-by-step explanation:
The statement that overapplied or underapplied overhead is adjusted to raw materials purchased to arrive at the actual cost of goods sold is false. When manufacturing companies allocate manufacturing overhead to production throughout the year, they use an estimated overhead rate. At the end of the accounting period, the estimated overhead applied to products (the sum of the indirect manufacturing costs like electricity, rent, and salaries for managers) may not exactly match the actual overhead incurred. Therefore, a difference arises, known as either overapplied overhead (too much allocated) or underapplied overhead (too little allocated).
Adjusting for overapplied or underapplied overhead is typically done by allocating the difference to Cost of Goods Sold, Finished Goods Inventory, and Work In Process Inventory, not directly to raw materials purchased. The adjustment ensures that the inventories and the cost of goods sold are stated at their actual costs and that the income statement reflects the actual expenses.