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Setting aside your answer to the question on Abraham's manufacturing overhead, assume that the actual cost of overhead is $280,000, the applied manufacturing overhead in 2020 is $300,000 (as originally stated in the problem), and the cost of goods sold before considering the amount of overapplied or underapplied overhead is $900,000. Compute the cost of goods sold for 2020 after adjusting for the overapplied/underapplied overhead (do not prorate). Show your work and/or explain your answer in order to receive full credit.

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Zviko

Answer:

$880,000

Explanation:

The amount of over-applied or under-applied overheads is usually used to adjust the Cost of Goods Sold amount.

Since, Applied Overheads ($300,000) > Actual Overheads ($280,000), we say overheads are over-applied.

Over-application = $300,000 - $280,000 = $20,000

Adjusted Cost of Goods Sold :

Cost of Goods Sold before adjustments    $900,000

Less over-applied overheads                      ($20,000)

Cost of Goods Sold                                      $880,000

Therefore, after adjusting for the overapplied overheads the cost of goods sold amounts to  $880,000

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