At the end of the year, overhead applied was $42,000,000. Actual overhead was $40,300,000. Closing over/underapplied overhead into Cost of Goods Sold would cause net income to
A) increase by $1,700,000
B) decrease by $1,700,000
C) increase by $3,400,000
D) decrease by $3,400,000

Question

Quizplus · Accepted Answer

When overhead is overapplied, it means that the applied overhead is greater than the actual overhead. Closing the overapplied overhead into Cost of Goods Sold will decrease the Cost of Goods Sold, thus increasing net income by the difference of $1,700,000.

At the End of the Year, Overhead Applied Was $42,000,000