Question

At star plastics, the balance in manufacturing overhead (which represents over or underapplied overhead) is always closed to Cost of goods sold. This is done even when the balance is relatively large. Suzette Barger, the controller, explains that this makes sense because Star uses a just-in-time (JIT) manufacturing system and jobs are shipped to customers within hours of being completed.

              Write a paragraph elaborating on the justification provided by Suzette Barger. Why is there no need to apportion the balance in manufacturing overhead among Work in process, finished goods, and cost of goods sold?

Answer 1

Yes, the justification provided by Suzette Barger is correct because now-a-days the production is mainly under the “Just-in-time manufacturing system” and are at-once shipped to customers within hours of being completed, so there is neither any job in process nor any considerable raw-material or any finished good to store. Therefore, there exists hardly any work in process or raw-material to absorb the under or over application of overhead. Thus, all under or over application of overhead should be put against the Sales and closed to the “Cost of Goods Sold”.

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