Western Governors University (WGU) ACCT3314 D101 Cost and Managerial Accounting Practice Exam

When manufacturing overhead is underapplied, it indicates that the actual overhead costs incurred during the period exceeded the overhead costs that were allocated based on the predetermined overhead rate. To address this underapplied overhead, an adjustment needs to be made during the closing of the manufacturing overhead account.

Debiting the cost of goods sold reflects the additional overhead that should have been applied to the products but was not recognized in the accounting records. This adjustment increases the cost of goods sold to accurately reflect the total production costs for the period, aligning expenses with actual overhead incurred. By debiting cost of goods sold, the financial statements are more accurately portraying the expenses associated with the goods sold during the period, thus impacting profit margins and net income.

The other options pertain to different accounts that do not accurately reflect the adjustment needed for underapplied overhead. Finished goods inventory and work-in-process inventory would not typically be adjusted in this case, as the focus is on recognizing the expense in the cost of goods sold. Additionally, debiting the manufacturing overhead account would not resolve the underapplied amount but rather would incorrectly suggest it has been satisfied when it has not. Therefore, the appropriate entry is indeed a debit to cost of goods sold to complete the adjustment for the underap