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Which of the following statements about under- or overapplied manufacturing overhead is correct?
A) After the entry to transfer over- or underapplied overhead to Cost of Goods Sold is posted Manufacturing Overhead will have a zero balance.
B) When Manufacturing Overhead has a credit balance overhead is said to be under-applied.
C) At the end of the year under- or overapplied overhead is eliminated by a closing entry.
D) When annual financial statements are prepared overapplied overhead is reported in current liabilities.
Underapplied Manufacturing Overhead
A situation where the allocated manufacturing overhead costs are less than the actual overhead costs incurred, creating a discrepancy in cost accounting.
Overapplied Manufacturing Overhead
A case where the overhead costs designated for production are higher than the overhead expenses that actually happened.
Cost of Goods Sold
The direct costs attributable to the production of the goods sold by a company, including both materials and labor costs.
- Evaluate the influence of overhead misallocation, whether overapplied or underapplied, on financial documentation.
- Assess the consequences for financial statements arising from over- or underapplication of overhead costs.
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Learning Objectives
- Evaluate the influence of overhead misallocation, whether overapplied or underapplied, on financial documentation.
- Assess the consequences for financial statements arising from over- or underapplication of overhead costs.
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