Question

At the end of the year, Sorter Company had underapplied overhead by $134,000. The variance is considered to be material. What action should Sorter Company take?

Recalculate the overhead rate and reapply overhead to production to come up with an immaterial variance.
Close the variance to COGS.
Apportion the overhead variance to the ending balances of WIP, Finished Goods, and COGS.
Apportion the overhead variance to the ending balances of Direct Materials, WIP, and COGS.

Answer 1

Sorter Company should recalculate the overhead rate and reapply overhead to production to come up with an immaterial variance. This will help avoid a significant underapplied overhead and maintain the company's financial results.

Step-by-step explanation:

Sorter Company should take the action of recalculating the overhead rate and reapplying overhead to production to come up with an immaterial variance. By doing this, they can adjust the overhead rate to better reflect the actual costs and avoid a significant underapplied overhead. This will help ensure that the overhead variance is within an acceptable range and does not adversely impact the company's financial results.