Which of the following statements about under- or overapplied manufacturing overhead is correct?
A)After the adjustment to transfer over- or underapplied overhead to Cost of Goods Sold Manufacturing Overhead will have a zero balance.
B)When Manufacturing Overhead has a negative balance overhead is said to be under-applied.
C)At the end of the year under- or overapplied overhead is not eliminated by adjusment.
D)When annual financial statements are prepared overapplied overhead is reported in current liabilities.

Question

Quizplus · Accepted Answer

When manufacturing overhead is over- or underapplied, an adjusting entry is needed to transfer the balance to Cost of Goods Sold. This adjustment ensures that the actual overhead incurred is properly allocated to the products produced during the period. Once this adjustment has been made, the manufacturing overhead account will have a zero balance. Therefore, statement A is correct. Statements B, C, and D are incorrect. When manufacturing overhead has a negative balance, it is said to be overapplied. At the end of the year, any over- or underapplied overhead is eliminated by an adjusting entry to transfer the balance to Cost of Goods Sold. Finally, overapplied overhead is reported as a reduction of cost of goods sold, rather than a liability.

Which of the Following Statements About Under- or Overapplied Manufacturing