This video shows how to prorate an overapplied or underapplied manufacturing overhead balance among accounts.
Manufacturers apply overhead using a predetermined overhead rate, but the manufacturing overhead applied often differs from the actual overhead incurred. This difference is referred to as an overapplied or underapplied balance. Companies can dispose of the underapplied or overapplied balance by prorating it (i.e., spreading it) among three accounts: Work-in-Process Inventory, Finished Goods Inventory, and Cost of Goods Sold. The video shows how to perform the proration using an example.