Question

Conceptually, any under- or overapplied overhead at the end of the year should be allocated among all of the following except

a.Work in Process Inventory.
b.Finished Goods Inventory.
c.Raw Materials Inventory.
d.Cost of Goods Sold.

Answer 1

Under- or overapplied overhead at the end of the year should be allocated to Work in Process Inventory, Finished Goods Inventory, and Raw Materials Inventory but not to Cost of Goods Sold,So correct answer is d. Cost of Goods Sold.

Step-by-step explanation:

At the end of the year, when there is under- or overapplied overhead, it needs to be allocated among various accounts to ensure accurate cost distribution. Work in Process Inventory, Finished Goods Inventory, and Raw Materials Inventory are part of the production process and, therefore, should bear a portion of the under- or overapplied overhead. This allocation helps adjust the costs associated with these inventory accounts and aligns them with the actual overhead incurred during the production process.

The Cost of Goods Sold (COGS) is the total cost of manufacturing and delivering products to customers. Unlike inventory accounts, COGS represents the expenses directly associated with goods that have been sold during the period. Under- or overapplied overhead is not allocated to COGS because it could distort the actual cost of goods sold, affecting the accuracy of the income statement. COGS is typically recognized at the time of sale, and any adjustments related to overhead are made within the inventory accounts to maintain the integrity of cost of goods sold figures.

The allocation of under- or overapplied overhead involves dividing the total amount by a chosen allocation base. For instance, if the underapplied overhead is $5,000 and the chosen allocation base is machine hours (MH), and if the total machine hours for the period across all departments is 10,000 MH, the allocation rate would be $5,000 / 10,000 MH = $0.50 per machine hour. This rate is then used to allocate the underapplied overhead to Work in Process Inventory, Finished Goods Inventory, and Raw Materials Inventory based on the machine hours consumed in each area.So correct answer is d. Cost of Goods Sold.

Answer 2

Conceptually, any under- or overapplied overhead at the end of the year should be allocated among Work in Process Inventory, Finished Goods Inventory and Cost of Goods Sold. Thus, the correct answer is c. Raw Materials Inventory.

Step-by-step explanation:

When dealing with under- or overapplied overhead costs, the adjustment should be allocated among Work in Process Inventory, Finished Goods Inventory, and Cost of Goods Sold. Raw Materials Inventory, however, is not affected by the under- or overapplied overhead at the end of the year.

Work in Process Inventory accounts for partially completed goods, Finished Goods Inventory includes completed products awaiting sale, and Cost of Goods Sold represents the expenses incurred to produce goods sold during the period. These three accounts directly relate to the production process and the eventual sale of goods, thus absorbing the impact of under- or overapplied overhead.

On the contrary, Raw Materials Inventory represents the materials yet to be used in production. Since these materials have not entered the production process, they are not impacted by overhead costs that arise from the manufacturing process's indirect expenses.

Therefore, while under- or overapplied overhead is reconciled and allocated among Work in Process Inventory, Finished Goods Inventory, and Cost of Goods Sold to accurately represent production costs and expenses, Raw Materials Inventory remains unaffected as it pertains to materials yet to be utilized in the manufacturing process.

Thus, the correct answer is c. Raw Materials Inventory.