At the end of July, the first month of the current fiscal year, the factory overhead account had a debit balance. Which of the following describes the nature of this balance and how it would be reported on the interim balance sheet?

Question

Quizplus · Accepted Answer

A debit balance in the factory overhead account at the end of the month indicates that the actual overhead costs incurred were greater than the overhead costs applied to production. This is referred to as underapplied overhead, and it represents an expense that was not fully allocated to the products manufactured. To report this on the balance sheet, it would be a deferred debit because the expense was incurred in the current period but not fully allocated to products until future periods.

At the End of July, the First Month of the Current