Wintergreen Products allocates overhead based on direct labor hours. During 2011 overhead was overapplied by $4,000. Assuming that the year-end adjustment to clear out the overapplied overhead has not yet been done, which of the following statements is most likely trueif there are no ending inventories?
A) Direct material costs are understated
B) Direct labor costs are understated
C) Cost of goods sold is overstated
D) Net income is overstated

Question

Quizplus · Accepted Answer

When overhead is overapplied, it means that the overhead allocated to products was more than the actual overhead incurred. If there are no ending inventories, the overapplied overhead would result in an overstatement of the cost of goods sold, which would need to be adjusted to reflect the true cost.

Wintergreen Products Allocates Overhead Based on Direct Labor Hours