If a company applies overhead to production with a predetermined overhead rate, a credit balance in the Factory Overhead account at the end of the period means that:
A) The overhead was underapplied for the period.
B) Actual overhead was greater than the overhead amount applied to production.
C) The bookkeeper has made an error because the debits don't equal the credits.
D) The balance will be carried forward to the next period as an overhead cost.
E) Actual overhead incurred was less than the overhead amount applied to production.

Question

Quizplus · Accepted Answer

A credit balance in the Factory Overhead account means that actual overhead incurred was less than the overhead amount applied to production. This could be due to various reasons like lower usage of utilities, lower maintenance costs, or lower indirect labor costs. The credit balance is usually closed out to Cost of Goods Sold or carried forward as a net amount to the next period.

If a Company Applies Overhead to Production with a Predetermined