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Samantha Garcia
on Nov 12, 2024

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If the amount of underapplied or overapplied overhead is considered material at the end of a period, the preferred approach to dispose of such balances is to allocate the amounts proportionally to Cost of Goods Sold for the period and ending Work in Process and Finished Goods inventories.

Underapplied Overhead

occurs when the allocated manufacturing overhead cost is less than the actual overhead incurred, leading to a discrepancy.

Overapplied Overhead

A situation where the allocated manufacturing overhead costs exceed the actual overhead costs incurred.

Cost of Goods Sold

The immediate expenses directly linked to the manufacturing of products sold by a firm, such as labor and materials used.

  • Explain the treatment of underapplied and overapplied manufacturing overhead in financial accounts.
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Camille HammettNov 15, 2024
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