If overhead is miscalculated so that it is underabsorbed, the result if the error is not corrected will be that
A)inventory will be understated and net income will be overstated.
B)inventory and net income will be overstated.
C)inventory will be overstated and net income will be understated.
D)inventory and net income will be understated.

Question

Quizplus · Accepted Answer

If overhead is underabsorbed, it means that not enough overhead costs have been allocated to inventory. This results in inventory being understated because the costs associated with producing the inventory are lower than they should be. Consequently, net income will also be understated because the cost of goods sold will be higher than it should be, reducing the net income.

If Overhead Is Miscalculated So That It Is Underabsorbed, the Result