Question

Matthias Corporation has provided data concerning the Corporation's Manufacturing Overhead account for the month of May. Prior to the closing of the overapplied or underapplied balance to Cost of Goods Sold, the total of the debits to the Manufacturing Overhead account was $73,000 and the total of the credits to the account was $109,000 . Which of the following statements is true?

A) Manufacturing overhead for the month was underapplied by $36,000 .

B) Manufacturing overhead transferred from Finished Goods to Cost of Goods Sold during the month was $73,000.

C) Actual manufacturing overhead incurred during the month was $109,000 .

D) Manufacturing overhead applied to Work in Process for the month was $109,000 .

Answer 1

Solution

Matthias Corporation

Correct option – D. Manufacturing overhead applied to Work in Process for the month was $109,000.

Explanation –

Manufacturing overhead refers to a holding account that records actual overhead costs incurred as debits and applied overhead costs to work in process as credits.

The manufacturing overhead account aims to narrow the gap between the actual overhead costs incurred and the applied overhead costs. Hence, the account is debited with costs incurred and credited with the applied overhead cost to work in the process account.

Depending upon the amounts of actual overhead costs are incurred, and the applied overhead costs. At the end of the period, the balance is account is closed to the cost of goods sold.

If the debit balance is higher, then the overhead is said to have been underapplied.

If the credit balance is higher, then the overhead is said to have been overapplied.

Considering other options –

Option A – This option is incorrect.

The manufacturing overhead for the month is in fact ‘Overapplied’ by $36,000 and not ‘underapplied’ by $36,000. Hence, this option is incorrect.

Option B – This option is incorrect.

Manufacturing overhead transferred from Finished Goods to Cost of Goods sold during the month was $73,000.

Applied Manufacturing overhead is transferred to work in process and the over or underapplied balance is closed to cost of goods sold but not to finished goods.

Option C – This option is incorrect.

The credit side of the manufacturing overhead refers to the applied overhead and not the incurred overhead. As mentioned above, the incurred overhead is debited to the manufacturing overhead account. Hence, this option is incorrect.