Before prorating the manufacturing overhead costs at the end of 2016, the Cost of Goods Sold and Finished Goods Inventory had applied overhead costs of $57,700 and $22,000 in them, respectively. There was no Work-in-Process at the beginning or end of 2016. During the year, manufacturing overhead costs of $76,000 were actually incurred. The balance in the Applied Manufacturing Overhead was $79,700 at the end of 2016. If the under - or overapplied overhead is prorated between Cost of Goods Sold and the inventory accounts, how much will be the Cost of Goods Sold after the proration?

Question

Business

Karlee Lyons

15 July, 00:23

Before prorating the manufacturing overhead costs at the end of 2016, the Cost of Goods Sold and Finished Goods Inventory had applied overhead costs of $57,700 and $22,000 in them, respectively. There was no Work-in-Process at the beginning or end of 2016. During the year, manufacturing overhead costs of $76,000 were actually incurred. The balance in the Applied Manufacturing Overhead was $79,700 at the end of 2016. If the under - or overapplied overhead is prorated between Cost of Goods Sold and the inventory accounts, how much will be the Cost of Goods Sold after the proration?

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Gaven Dunlap · Answer 1

Cost of Goods Sold will decrease by $2,679 after proration.

Explanation:

Under-applied or over applied overhead:

= Overhead incurred - Overhead applied

= $76,000 - $79,700

= (-$3,700)

Therefore, the Cost of Goods Sold after the proration:

= (over applied overhead * Overhead applied to COGS) : Total overhead applied to cost of goods sold and finished goods

= ($3,700 * $57,700) : ($57,700 + $22,000)

= $213,490,000 : $79,700

= $2,679

Hence, the Cost of Goods Sold will decrease by $2,679 after proration.