Question

At the current year-end, Simply Company found that its overhead was underapplied by $2,500, and this amount was not considered material. Based on this information, Simply should: Multiple Choice Close the $2,500 to Cost of Goods Sold. Close the $2,500 to Finished Goods Inventory. Do nothing about the $2,500, since it is not material, and it is likely that overhead will be overapplied by the same amount next year. Carry the $2,500 to the income statement as "Other Expense". Carry the $2,500 to the next period.

Answer 1

Close the $2,500 to Cost of Goods Sold

Step-by-step explanation:

The under applied overhead is added to the Cost of Goods Sold amount.

The same amount would be debited to the cost of goods sold and the manufacturing overhead would be credited with the same amount that is $ 2500.

Under applied overhead means that the overhead actually incurred is more than the overhead planned of to be incurred. So we add back the amount by which it is less.