Question

At the end of the year, Script Company had the following account balances:

		Balance
Underapplied overhead	$	7,200,000
Cost of goods sold		67,200,000
Work-in-process inventory		9,600,000
Finished goods inventory		19,200,000

Show the Underapplied Overhead effect on the account balances in the following table.

Answer 1

Underapplied overhead	$0
Cost of goods sold	$7,22,40,000
$67,200,000 + (70% × $7,200,000)
Work-in-process inventory	$1,03,20,000
$9,600,000 + (10% × $7,200,000)
Finished goods inventory	$2,06,40,000
$19,200,000 + (20% × $7,200,000)
Note:
In this case, the underapplied overhead is relatively large (it is greater than 10% of cost of goods sold,)
so the company might able to consider it material and decide to incorporate it. There is nothing mention
about direct labor (or applied overhead) so will allocate the underapplied overhead based on account balances.