At the current year-end, Hardly Company found that its overhead was underapplied by $2,500, and this amount?

Question

was not deemed to be a material amount. Based on this information, Hardly should 
 

A. Close the $2,500 to Cost of Goods Sold.

B. Close the $2,500 to Finished Goods Inventory.

C. Do nothing about the $2,500, since it is not material, and it is likely that overhead will be overapplied by the same amount next year.

D. Carry the $2,500 to the income statement as "Other Expense"

E. Carry the $2,500 to the next period.

Answer 1

A.Close the $2,500 to Cost of Goods Sold.

If the variance amount is very small (insignificant relative to the company's net income), simply put the entire amount on the income statement. If the variance amount is unfavorable, increase the cost of goods sold—thereby reducing net income. If the variance amount is favorable, decrease the cost of goods sold—thereby increasing net income.

Answer 2

B.