Spectrum Manufacturing had the following information in its records at the end of the year: What was the balance in Manufacturing Overhead, and when closed what will the effect be on gross margin?
A)$3,000 underapplied, and increase
B)$3,000 overapplied, and increase
C)$3,000 underapplied, and decrease
D)$3,000 overapplied, and decrease

Question

Spectrum Manufacturing had the following information in its records at the end of the year:   What was the balance in Manufacturing Overhead, and when closed what will the effect be on gross margin?
A)$3,000 underapplied, and increase 
B)$3,000 overapplied, and increase 
C)$3,000 underapplied, and decrease 
D)$3,000 overapplied, and decrease

Quizplus · Accepted Answer

The information given in the records is referring to Manufacturing Overhead account. The first code represents the actual amount of MOH incurred during the year, while the second code represents the amount of MOH applied to production. The difference between these two amounts is the amount of MOH overapplied or underapplied. In this case, the second code is higher than the first code, indicating that MOH was overapplied by $3,000. When the MOH account is closed at the end of the year, the overapplied amount will be credited to the account, which will decrease the cost of goods sold and increase gross margin. Therefore, the correct answer is B.

Spectrum Manufacturing Had the Following Information in Its Records at the End