Sagon Corporation has provided data concerning the Corporation's Manufacturing Overhead account for the month of September.Prior to the closing of the overapplied or underapplied balance to Cost of Goods Sold, the total of the debits to the Manufacturing Overhead account was $76,000 and the total of the credits to the account was $66,000.Which of the following statements is true?

A) Manufacturing overhead transferred from Finished Goods to Cost of Goods Sold during the month was $76,000.
B) Actual manufacturing overhead incurred during the month was $66,000.
C) Manufacturing overhead applied to Work in Process for the month was $76,000.
D) Manufacturing overhead for the month was underapplied by $10,000.

Question

Katie Kittrell · Accepted Answer

Final Answer : D, Explanation :  The actual manufacturing overhead incurred during the month is not given in the question, so B cannot be the answer.Since the total of debits to the Manufacturing Overhead account exceeds the total of credits, there is an overapplied balance in the Manufacturing Overhead account (i.e. more overhead was applied than actually incurred). To close this overapplied balance to Cost of Goods Sold, we would debit Cost of Goods Sold and credit Manufacturing Overhead. The amount of the debit to Cost of Goods Sold would be equal to the amount of the overapplied balance, which is $76,000 - $66,000 = $10,000. Therefore, option D is correct.Option A is incorrect because it assumes that all overhead applied to Work in Process was transferred to Finished Goods and then to Cost of Goods Sold, which may not be the case.Option C is incorrect because the question does not provide information on the overhead applied to Work in Process.   A debit balance in Manufacturing Overhead means that manufacturing overhead was underapplied.

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