Question

The actual manufacturing overhead incurred at Fraze Corporation during November was $79,000, while the manufacturing overhead applied to Work in Process was $65,000. The Corporation's Cost of Goods Sold was $385,000 prior to closing out its Manufacturing Overhead account. The Corporation closes out its Manufacturing Overhead account to Cost of Goods Sold. Which of the following statements is true?

• Manufacturing overhead for the month was underapplied by $14,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $399,000

• Manufacturing overhead for the month was overapplied by $14,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $371,000

• Manufacturing overhead for the month was overapplied by $14,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $399,000

• Manufacturing overhead for the month was underapplied by $14,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $371,000

Answer 1

Actual manufacturing overhead = $79,000

Applied manufacturing overhead = $65,000

Under applied manufacturing overhead = Actual manufacturing overhead - Applied manufacturing overhead

= 79,000 - 65,000

= $14,000

Cost of goods sold prior to closing of manufacturing overhead account = $385,000

Since manufacturing overhead was under applied, hence cost of goods sold will increase by under applied manufacturing overhead.

Hence, cost of goods sold after closing of manufacturing overhead account = Under applied manufacturing overhead + Cost of goods sold prior to closing of manufacturing overhead account

= 14,000 + 385,000

= $399,000

Hence, Manufacturing overhead for the month was underapplied by $14,000; Cost of Goods Sold after closing out the Manufacturing Overhead account is $399,000

First option is the correct option.

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