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Normal Job Costing: Overhead Allocation


Because normal job costing uses a standard overhead allocation rate instead of the actual amounts, there are periods in which the applied overhead does not match the actual overhead that occurred.

What is the MOST correct method of handling this issue?


Allocate the entire overage/shortage to manufacturing overhead.


Allocate entire overage/shortage to the various jobs currently open (not completed) in the reporting period.


Allocate entire overage/shortage to the Cost of Goods Sold account.


Allocate the entire variance to the various accounts depending on whether it is an overage or a shortage to Finished Goods, Work-in-Process, and Cost of Goods Sold on a prorated basis.