Question

What entry would make to adjust the manufacturing overhead account for overallocated or underallocated​ overhead?

Answer 1

Adjustments

1. Overallocated Manufacturing Overhead:

Debit Manufacturing Overhead

Credit Cost of goods sold

With the amount of overallocated manufacturing overhead.

2. Underallocated Manufacturing Overhead:

Debit Cost of goods sold

Credit Manufacturing Overhead

With the amount of underallocated manufacturing overhead.

Step-by-step explanation:

When the manufacturing overhead is overallocated, the account has a credit balance. To adjust the entry, the account is debited while the cost of goods sold is credited. This reduces the cost of goods sold by the amount of the overallocation. The opposite takes place with an underallocated overhead. The purpose of the latter is to increase the cost of goods sold to reflect the overhead expense for the period.