When actual overhead cost exceeds overhead applied to production,
A)over-absorbed overhead is added to cost of goods sold.
B)over-absorbed overhead is deducted from cost of goods sold.
C)under-absorbed overhead is added to cost of goods sold.
D)under-absorbed overhead is deducted from cost of goods sold.

Question

Quizplus · Accepted Answer

When actual overhead cost exceeds overhead applied to production, it means that the overhead applied was not enough to cover the actual overhead costs incurred. Therefore, there is an under-absorption of overhead. This under-absorbed overhead is added to the cost of goods sold to adjust the overall cost and ensure accuracy in the accounting records.

When Actual Overhead Cost Exceeds Overhead Applied to Production