Question: The Custom Guitar Company uses a predetermined overhead rate of $5 per machine hour to apply overhead. During the year, 32, 500 machine hours were worked. Actual manufacturing overhead cost for the year was $187, 500. Company records showed the following account balances at the end of the year:

Materials                  $22, 500

Work in process          37, 500

Finished goods             50,000

Cost of goods sold     112, 500

Required: Determine the amount of underapplied or overapplied overhead.

Assuming the amount of underapplied or overapplied overhead is material, determine underapplied or overapplied overhead that would be allocated to the following accounts if the allocation is made using ending account balances:

Work in Process

Finished Goods

Cost of Goods Sold

Determine the balance of Cost of Goods Sold if underapplied or overapplied overhead is immaterial.