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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

If the factory overhead account has a negative balance, factory overhead is said to be:
a.Underapplied
B.Over-applied
C.Undcrabsorbed
D. In error

To determine

Concept Introduction:

Direct and Indirect Costs:

Manufacturing costs can be divided into two types; Direct costs and Indirect costs. Direct costs are easily traceable with the product like direct material and direct labor and indirect costs are not traceable easily like indirect material indirect labor and overheads.

Manufacturing overhead costs:

Manufacturing overhead cost is the pool of all indirect costs incurred for the production. These are the costs which are not directly traceable to the product. Manufacturing costs include indirect material indirect labor and overheads.

To choose:

The term for negative factory overhead balance

Explanation

Explanation for correct answer:

If the overhead account has a negative balance, it means the overhead is over applied. Hence option B is the right answer.

Explanation for incorrect answers:

A. If the overhead account has a negative balance; it means the overhead is over applied...

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