Which of the Following About Using Proration to Dispose of Underapplied

question 49

Multiple Choice

Which of the following about using proration to dispose of underapplied or overapplied overhead is correct?

• A) Proration is a less accurate method than closing the account to COGS,because it arbitrarily allocates overhead between COGS account,WIP account,and finished goods account.
• B) Proration is a less accurate method than closing the account to COGS,because the process affects three accounts rather than just one account.
• C) Proration is a more accurate method than closing the account to COGS,because it recognises that over/under estimation of overhead rate affects more than just the COGS account.
• D) Proration is a more accurate method than closing the account to COGS,because the potential distortion is spread out over three accounts.

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Definitions:

Credit Balance

A credit balance occurs when the total credits in an account exceed the total debits, indicating the amount owed to the account holder or in the case of financial statements, to the creditor.

Factoring

A financial transaction where a business sells its accounts receivable to a third party (factor) at a discount to get immediate cash.

Nontrade Receivables

Amounts owed to a business that are not related to the sale of goods or services, such as tax refunds, advances to employees, or insurance claims.

Company Officers

Executives appointed by the board of directors responsible for managing the day-to-day operations and making major corporate decisions.