Which of the following is correct with respect to closing out overapplied manufacturing overhead to Cost of Goods Sold versus closing it out to Cost of Goods Sold and Finished Goods and Work in Process inventories?
A. The balance in the Work in Process account after allocation will be higher if the overapplied manufacturing overhead is closed out by allocating it to all appropriate accounts.
B. The balance in the Work in Process account after allocation will be the same under either method.
C. Net operating income will be higher if all of the overapplied manufacturing overhead is closed out to Cost of Goods Sold.
D. Cost of Goods Sold will be lower if the overapplied manufacturing overhead is closed out by allocating it to the inventory accounts as well as to Cost of Goods Sold.
Answer: C
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