The Marina Corp.has applied overhead to jobs during the period as follows: The application of overhead has resulted in a $5,600 credit balance in the Factory Overhead account,and this amount is not material.The entry to dispose of this remaining factory overhead balance is:

Question

The Marina Corp.has applied overhead to jobs during the period as follows:  The application of overhead has resulted in a $5,600 credit balance in the Factory Overhead account,and this amount is not material.The entry to dispose of this remaining factory overhead balance is:

Quizplus · Accepted Answer

When there is a credit balance in the Factory Overhead account, it means that overhead applied was more than the actual overhead incurred. Therefore, the credit balance needs to be closed out by transferring it to Cost of Goods Sold account because it is not a valid cost of production. The entry to dispose of the remaining factory overhead balance is to debit Factory Overhead for $5,600 and credit Cost of Goods Sold for $5,600.