Question at position 15 Which of the following statements is correct?When the manufacturing overhead cost was overapplied, it means that the unadjusted cost of goods sold is equal to the adjusted cost of goods sold.When the manufacturing overhead cost was overapplied, it means that the unadjusted cost of goods sold is higher than the adjusted cost of goods sold.When the manufacturing overhead cost was underapplied, it means that the unadjusted cost of goods sold is higher than the adjusted cost of goods sold.When the manufacturing overhead cost was overapplied, it means that the adjusted cost of goods sold is higher than the unadjusted cost of goods sold.

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BlackTom AI · Accepted Answer

Question restatement: Identify which statement about manufacturing overhead (MOH) is correct when MOH is overapplied.

Option 1: 'When the manufacturing overhead cost was overapplied, it means that the unadjusted cost of goods sold is equal to the adjusted cost of goods sold.' This is incorrect because overapplied MOH implies a difference between unadjusted and adjusted COGS; they are not equal. The adjustment is needed to reflect the actual MOH incurred, so the unadjusted and adjusted figures do not coincide.

Option 2: 'When the manufacturing overhead cost was overapplied, it means that the unadjusted cost of goods sold is higher than the adjusted cost of goods sold.' This is correct. Overapplied MOH means more overhead was allocated to products than was actually incurred. Consequently, COGS reported before adjustment (unadjusted) is too high, and when MOH is pruned to reflect actual costs, the COGS is reduced (adjusted COGS < unadjusted COGS).

Option 3: 'When the manufacturing overhead cost was underapplied, it means that the unadjusted cost of goods sold is higher than the adjusted cost of goods sold.' This statement confuses overapplied with underapplied MOH. Underapplied MOH indicates the opposite relationship: actual MOH is higher than allocated, which would typically make adjusted COGS higher than unadjusted COGS, not the other way around.

Option 4: 'When the manufacturing overhead cost was overapplied, it means that the adjusted cost of goods sold is higher than the unadjusted cost of goods sold.' This reverses the correct direction. If MOH is overapplied, the adjustment lowers COGS, so adjusted COGS is not higher than unadjusted COGS; it is lower.

Summary of reasoning: The key concept is that overapplied MOH means the overhead allocation exceeded actual costs, so removing the excess lowers COGS upon adjustment. Therefore, the correct characterization is that unadjusted COGS is higher than adjusted COGS, which aligns with Option 2.

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