Overapplied or underapplied overhead should be removed from the Factory Overhead account at the end of each accounting period.

Question

Quizplus · Accepted Answer

Overapplied or underapplied overhead represents the difference between the actual overhead incurred and the overhead applied to the production process. This difference needs to be corrected by removing it from the Factory Overhead account and allocating it to the appropriate accounts such as Cost of Goods Sold or Work in Process. This adjustment is made at the end of each accounting period to ensure accuracy in the company’s financial statements.

Overapplied or Underapplied Overhead Should Be Removed from the Factory