Question

35. Now assume that the overapplied overhead is prorated as follows: $800 to Work in Process $1,200 to Finished Goods $3,000 to Cost of Goods Sold Prorating (our Method #2) the Overapplied Overhead would yield a (higher or lower) income figure for the company than if the $5,000 was totally charged to Cost of Goods Sold for the period? a. Higher b. Lower

36. By how much would income change if we prorate the $5,000 compared to charging it totally to Cost of Goods Sold. You will need to refer to Question 35 to answer this question. a. $3,200 b. $3,000 c. $2,800 d. $2,000 e. $800

Answer 1

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35. Now assume that the over applied overhead is prorated as follows: $800 to Work in Process $1,200 to Finished Goods $3,000 to Cost of Goods Sold Prorating (our Method #2) the Over applied Overhead would yield a (higher or lower) income figure for the company than if the $5,000 was totally charged to Cost of Goods Sold for the period? a. Higher b. Lower

Income will be higher because earlier entire Over applied Overhead was charged to Cost of Goods Sold so it impacted income by $ 5,000. But now only $ 3,000 is charged to Cost of Goods Sold so it will increase income by $ 2,000 i.e. $ 5,000 less $ 3,000 equals $ 2,000.

36. By how much would income change if we prorate the $5,000 compared to charging it totally to Cost of Goods Sold. You will need to refer to Question 35 to answer this question. a. $3,200 b. $3,000 c. $2,800 d. $2,000 e. $800

Income will change by $ 2,000 because earlier entire Over applied Overhead was charged to Cost of Goods Sold so it impacted income by $ 5,000. But now only $ 3,000 is charged to Cost of Goods Sold so it will increase income by $ 2,000 i.e. $ 5,000 less $ 3,000 equals $ 2,000.