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 bookkeeper has made an error because the debits don't equal the credits.
B)The balance will be carried forward to the next period as an overhead cost.
C)Actual overhead incurred was less than the overhead amount applied to production.
D)The overhead was underapplied for the period.
E)Actual overhead was greater than the overhead amount applied to production.

Question

Quizplus · Accepted Answer

A credit balance in the Factory Overhead account means that the actual overhead incurred was less than the overhead amount applied to production, which is a favorable situation for the company. Therefore, the balance will be carried forward to the next period as an overhead cost. Option A is incorrect because a credit balance does not necessarily mean an error has occurred. Option B is partly correct, but the reason for the balance being carried forward is actual overhead being less. Option D is incorrect because underapplied overhead would result in a debit balance, not a credit balance. Option E is also incorrect because actual overhead being greater would result in an overapplied overhead scenario.

If a Company Applies Overhead to Production with a Predetermined