Question

At the end of the accounting period, a company's overhead was overapplied by $400. The Factory Overhead account was properly adjusted. What effect did the adjustment have on net income?

Answer 1

Answer:

The overapplied factory overhead results in more expense. The overapplied factory overhead results in increase in cost of good sold. Over-application means that actual overhead are less than reported expense. At the end of the accounting period the company will pass following accounting entry to adjust over application

Debit FOH account                400

Credit Cost of Good Sold       400

So after this adjustment the net income will increase by 400 dollars.