when closing overapplied manufacturing overhead to cost of goods sold, which of the following would be true…

when closing overapplied manufacturing overhead to cost of goods sold, which of the following would be true? net income will decrease. work in process will decrease. gross margin will increase. cost of goods sold will increase.

when closing overapplied manufacturing overhead to cost of goods sold, which of the following would be true? net income will decrease. work in process will decrease. gross margin will increase. cost of goods sold will increase.

Answer

Brief Explanations:

When manufacturing overhead is overapplied, it means more overhead was applied to production than actually incurred. When closing this overapplied amount to cost of goods sold (COGS), we decrease COGS. Gross margin is calculated as Sales - COGS. Since COGS decreases, gross margin (Sales - lower COGS) will increase.

  • Net income would increase (not decrease) because lower COGS leads to higher profit.
  • Work - in - process is not directly affected when closing overapplied overhead to COGS.
  • COGS decreases (not increases) when closing overapplied overhead to it.

Answer:

Gross margin will increase.