If manufacturing overhead is underapplied,the entry to close the overhead account at the end of the accounting period will:
A) decrease net income.
B) not effect total assets.
C) increase net income.
D) decrease cash flow from operating activities.

Question

Quizplus · Accepted Answer

When overhead is underapplied,actual overhead was higher than applied overhead (which is the amount of overhead that is included in work in process).At this point,the debits in the temporary Manufacturing Overhead account (for the actual overhead costs)exceed the credits in the account (for the amount applied)and the account has a debit balance.The related adjusting entry to close the Manufacturing Overhead account will credit that account and debit (or increase)the balance in the Cost of Goods Sold account.That increase to cost of goods sold will decrease net income.

If Manufacturing Overhead Is Underapplied,the Entry to Close the Overhead