Overhead Is Applied as a Percent of Direct Labor Costs

question 64

Multiple Choice

Overhead is applied as a percent of direct labor costs.Estimated overhead and direct labor costs for the year were $250,000 and $125,000,respectively.During the year,actual overhead was $248,000 and actual direct labor cost was $123,000.The entry to close the over- or underapplied overhead at year-end,assuming an immaterial amount,would include:

• A) A debit to Cost of Goods Sold for $2,000.
• B) A debit to Factory Overhead for $2,000.
• C) A credit to Finished Goods Inventory for $2,000.
• D) A debit to Goods in Process Inventory for $2,000.
• E) A credit to Cost of Goods Sold for $2,000.

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Definitions:

FOB Destination

A shipping term indicating that the seller is responsible for the goods and the cost of shipping until they are delivered to the buyer's specified location.

Physical Inventory

The process of counting and verifying all the physical goods and merchandise a company has in stock at a particular time.

Cost of Inventory

The total cost incurred to acquire inventory, including purchase price, taxes, and transportation.

Condensed Income Statement

A simplified financial statement summarizing a company's revenues, expenses, and net income, without detailed line items.