Newman Manufacturing underapplied its manufacturing overhead during 2011. Which of the following statements is true regarding the adjustment to clear out the underapplied overhead?

Question

Quizplus · Accepted Answer

Underapplied overhead means that actual overhead costs exceeded the overhead costs that were applied to production. To clear out the underapplied overhead, additional overhead costs must be applied to the cost of goods sold. Therefore, cost of goods sold will be increased to reflect the additional overhead costs. This adjustment does not affect period costs, work-in-process, or finished goods.

Newman Manufacturing Underapplied Its Manufacturing Overhead During 2011