Question

Hanover Fence produces custom wrought iron fencing. At the end of 2020 (before any adjustment), the account balances indicated the following: w $ 18,000 74,000 Raw Materials Inventory Work in Process Inventory Finished Goods Inventory Cost of Goods Sold Manufacturing Overhead (credit balance) 42,000 384,000 8,000 Hanover considers the balance of manufacturing overhead to be immaterial. How much will Hanover Fence report as Cost of Goods Sold after the adjustment? $376,000 $392,000 O $384,000 $382,000

Answer 1

The correct answer is $376,000.

Supporting explanations:

When manufacturing overhead account has a credit balance then it means that the overheads are overapplied than the actual overheads incurred so the excess overheads that were applied need to be removed from the cost of goods sold during adjusting its balance.

Therefore -

Unadjusted cost of goods sold	$384,000
Less: Overapplied manufacturing overheads	($8,000)
Adjusted cost of goods sold	$376,000

Therefore, the cost of goods sold that should be reported after the adjustment is $376,000.