Travis Company's records show that overhead was overapplied by $10,000 last year. This overapplied overhead was closed out to the Cost of Goods Sold account at the end of the year. In trying to determine why overhead was overapplied by such a large amount, the company has discovered that $6,000 of depreciation on factory equipment was charged to administrative expense in error. Given the above information, which of the following statements is true?
A) Manufacturing overhead was actually overapplied by $16,000 for the year.
B) The company's net income is understated by $6,000 for the year.
C) Under the circumstances posed above, the error in recording depreciation would have no effect on operating income for the year.
D) The $6,000 in depreciation should have been charged to Work-in-Process rather than to administrative expense.

Question

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The Answer of Travis Company's records show that overhead was overapplied by $10,000 last year. This overapplied overhead was closed out to the Cost of Goods Sold account at the end of the year. In trying to determine why overhead was overapplied by such a large amount, the company has discovered that $6,000 of depreciation on factory equipment was charged to administrative expense in error. Given the above information, which of the following statements is true?
A) Manufacturing overhead was actually overapplied by $16,000 for the year.
B) The company's net income is understated by $6,000 for the year.
C) Under the circumstances posed above, the error in recording depreciation would have no effect on operating income for the year.
D) The $6,000 in depreciation should have been charged to Work-in-Process rather than to administrative expense.

Travis Company's Records Show That Overhead Was Overapplied by $10,000