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15 May, 22:48

Before prorating the manufacturing overhead costs at the end of 2016, the Cost of Goods Sold and Finished Goods Inventory had applied overhead costs of $57,700 and $22,000 in them, respectively. There was no Work-in-Process at the beginning or end of 2016. During the year, manufacturing overhead costs of $76,000 were actually incurred. The balance in the Applied Manufacturing Overhead was $79,700 at the end of 2016. If the under - or overapplied overhead is prorated between Cost of Goods Sold and the inventory accounts, how much will be the Cost of Goods Sold after the proration?

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  1. 15 May, 23:02
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    Cost of Goods Sold will decrease by $2,679 after proration.

    Explanation:

    Under-applied or over applied overhead:

    = Overhead incurred - Overhead applied

    = $76,000 - $79,700

    = (-$3,700)

    Therefore, the Cost of Goods Sold after the proration:

    = (over applied overhead * Overhead applied to COGS) : Total overhead applied to cost of goods sold and finished goods

    = ($3,700 * $57,700) : ($57,700 + $22,000)

    = $213,490,000 : $79,700

    = $2,679

    Hence, the Cost of Goods Sold will decrease by $2,679 after proration.
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