Question

Job order: If the variance is material? Given 20:20:60 relationships, ex. is over applied, flip for under applied.

Option 1: Debit Manufacturing Overhead, Credit Cost of Goods Sold
Option 2: Debit Cost of Goods Sold, Credit Manufacturing Overhead
Option 3: Debit Finished Goods, Credit Manufacturing Overhead
Option 4: Debit Manufacturing Overhead, Credit Finished Goods

Answer 1

To determine if the variance is material, compare it to a certain threshold. If overapplied, choose Option 2. If underapplied, choose Option 1.

Step-by-step explanation:

To determine if the variance is material, you need to compare it to a certain threshold set by the company. If the variance is significant enough to impact decision making, it is considered material. In this case, if the variance in the 20:20:60 relationships is overapplied, meaning the actual cost is less than the applied cost, you would choose Option 2: Debit Cost of Goods Sold, Credit Manufacturing Overhead. On the other hand, if the variance is underapplied, meaning the actual cost is higher than the applied cost, you would choose Option 1: Debit Manufacturing Overhead, Credit Cost of Goods Sold.