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 company spent less on overhead than it allocated to its jobs. This indicates that the cost of goods sold is understated because it doesn't include all the overhead costs that were incurred. Therefore, to correct for this, the under-applied overhead cost is debited to cost of goods sold.

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