Question

The method that restates all overhead entries in the general ledger and subsidiary ledgers using actual cost rates rather than budgeted cost rates is called

A) the adjusted allocation rate approach
B) the proration approach
C) the write-off of cost of goods sold approach
D) None of these answers are correct.

Answer 1

The method in question is the adjusted allocation rate approach, which corrects overhead allocations using actual cost rates to enhance accuracy in financial reporting.

Step-by-step explanation:

The method that restates all overhead entries in the general ledger and subsidiary ledgers using actual cost rates rather than budgeted cost rates is called the adjusted allocation rate approach. This approach involves adjusting the rate at which overhead costs are applied to products or services after the actual costs are known, to ensure that the allocated overhead is as accurate as possible.

This contrasts with the proration approach, which spreads under- or overapplied overhead among various accounts, or the write-off to cost of goods sold approach, which directly adjusts the cost of goods sold account.