If a company has under-applied overhead at the end of the accounting period, how is it accounted for?

Question

Quizplus · Accepted Answer

Under-applied overhead means that the actual overhead incurred during the period was more than the applied overhead. This leads to an understatement of the cost of goods sold, since overhead costs were not fully allocated to the products. To correct for this, the under-applied overhead is debited to Cost of Goods Sold, which increases its balance and adjusts it to the correct amount.

If a Company Has Under-Applied Overhead at the End of the Accounting