When using a predetermined overhead rate to allocate

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When using a predetermined overhead rate to allocate overhead, unforeseen things can materially affect the amount allocated, resulting in a material balance left in the overhead control account. The text says that this amount needs to be allocated proportionately among WIP, FG, and CGS.

1. Why should the WIP and FG inventories receive a portion of this material underapplied/overapplied overhead?

2. What will allocation of a material underapplied/overapplied amount to CGS (only) do to the company's financial statements?

Reference no: EM13584286

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