In Chapter 15 of your texbook, Learning Objective #5 it states:

"At the end of the year, all manufacturing overhead transactions are complete. There is no further opportunity for offsetting events to occur. At this point, Wallace Company eliminates any balance in Manufacturing Overhead by an adjusting entry. It considers under or overapplied overhead to be an adjustment to cost of goods sold. Thus, Wallace debits underapplied overhead to Cost of Goods Sold. It credits overapplied overhead to Cost of Goods Sold.

After Wallace posts this entry, Manufacturing Overhead has a zero balance. In preparing an income statement for the year, Wallace reports cost of goods sold after adjusting it for either under or overapplied overhead.

Conceptually, some argue that under or overapplied overhead at the end of the year should be allocated among ending work in process, finished goods, and cost of goods sold. The discussion of this possible allocation approach is left to more advanced courses." If the over or underapplied overhead is material, explain why this allocation approach would be preferable.