Question

Faughn Corporation has provided the following data concerning manufacturing overhead for July:

Actual manufacturing overhead incurred $ 79,000
Manufacturing overhead applied to Work in Process $ 69,000
The company's Cost of Goods Sold was $243,000 prior to closing out its Manufacturing Overhead account. The company closes out its Manufacturing Overhead account to Cost of Goods Sold. Which of the following statements is true?
A. Manufacturing overhead was underapplied by $10,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $233,000
B. Manufacturing overhead was overapplied by $10,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $233,000
C. Manufacturing overhead was overapplied by $10,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $253,000
D. Manufacturing overhead was underapplied by $10,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $253,000

Answer 1

Answer: D. Manufacturing overhead was underapplied by $10,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $253,000

Step-by-step explanation:

The Manufacturing overhead applied is less than the actual manufacturing overhead incurred by:

= 79,000 - 69,000

= $10,000

Manufacturing overhead is therefore underapplied as the amount applied is too low to cover the amount incurred.

The Cost of Goods sold after closing out is:

= Cost of goods sold before closing out + Underapplied manufacturing overhead

= 243,000 + 10,000

= $253,000