When overhead is underapplied:
A) Cost of goods sold is understated
B) Work in process inventory is overstated
C) Gross profit is understated
D) Finished goods inventory is overstated

Question

Quizplus · Accepted Answer

When overhead is underapplied, it means that the actual overhead costs incurred were more than what was estimated or applied to production. This results in an understatement of the cost of goods sold because the actual overhead costs are not being included in the cost of goods sold calculation, leading to a lower cost of goods sold and therefore a higher net income.

When Overhead Is Underapplied