For an automobile company, the total overhead applied was $48,000,000 at the end of the year.Actual overhead was $52,850,000.Closing over/under applied overhead into cost of goods sold would cause net income to:
A) increase by $4,850,000.
B) decrease by $4,850,000.
C) stay the same.
D) decrease by $400,000.

Question

Quizplus · Accepted Answer

The over/under applied overhead is the difference between the total overhead applied and the actual overhead. Therefore, the over/under applied overhead for this automobile company is $4,850,000 ($52,850,000 - $48,000,000). Since the actual overhead is higher than the total overhead applied, it means that the overhead is under-applied, which will result in a decrease in net income. This is because the cost of goods sold will be increased by the amount of under-applied overhead.

For an Automobile Company, the Total Overhead Applied Was $48,000,000