Lotus Company's actual overhead is greater than the applied overhead.This difference is deemed immaterial.The company records this by debiting Overhead account and crediting Cost of Goods Sold account.Which of the following is true of Lotus Company?
A)The company has correctly recorded the difference.
B)The company's assets are overstated.
C)The company should have credited Work in Process account for the difference.
D)The company's Cost of Goods Sold account is understated.

Question

Quizplus · Accepted Answer

When actual overhead is greater than applied overhead, it means that the company has under-applied overhead. To correct this, the Cost of Goods Sold should be increased (debited), not credited, to reflect the additional cost. Therefore, the company's Cost of Goods Sold account is understated.

Lotus Company's Actual Overhead Is Greater Than the Applied Overhead