Using normal costing to cost units of productions, Steven Harper Co.has gathered the following information: Fixed manufacturing overhead was estimated to be $120,000 for the year.
Actual production was 40,000 units.
Actual fixed manufacturing overhead costs incurred were $125,000.
What is the result of this difference between the estimated fixed overhead and actual fixed overhead?
A)The difference is expensed as a period cost the way variable costing immediately expenses fixed overhead as a period cost.
B)The difference is over or under-applied overhead that if immaterial, will be closed out to cost of goods sold at year end.
C)The difference will be held in inventory and taken to cost of goods sold when the units are sold next year.
D)There is no difference.

Question

Quizplus · Accepted Answer

The difference between the estimated and actual fixed manufacturing overhead costs is considered over or under-applied overhead. If the difference is not material, it will be closed out to cost of goods sold at the end of the year. This is a common practice in normal costing.

Using Normal Costing to Cost Units of Productions, Steven Harper