Question

Google applies overhead to product costs. What account(s) is(are) used to eliminate overapplied or underapplied overhead from the Factory Overhead account, assuming the amount is not material?

Short answer

Finished goods, work-in-process, and cost of goods sold are the accounts to which the allocation will be made.

Step-by-step solution

Meaning of Product Cost

The direct expenses incurred in manufacturing a product are called product costs, such as direct labor; for instance, it would be one of a manufacturer's product expenses.

Accounts used to eliminate overapplied or underapplied overhead from the Factory Overhead account

The accounts for the allocation will be made of finished items, work-in-process, and the cost of goods sold. Other costs arise during the production of items in addition to the cost of direct materials and labor. These expenses are known as factory overhead expenses. Because these expenditures are accrued in cost pools, it is standard practice to distribute them to the units made during that period.

The underapplied or overapplied overhead that is deemed to be inconsequential would be closed against the COGS account. However, the decisions that were took based on the information would change if it turned out that the number was irrelevant. Therefore, in this instance, using direct labor as the allocation basis, the excess or underapplied overhead would be assigned to the accounts for finished goods, work in progress, and COGS.