Question

When overhead is underapplied: A. Cost of Goods Sold is understated B. Work in Process inventory is overstated C. Finished Goods inventory is overstated D. Gross Profit is understated

Answer 1

Answer:

A

Explanation:

Overhead cost is the cost involved in the daily operations of a business. It is the cost that is not directly attached to the production of goods and services. e.g. administrative costs

Overhead is underapplied when the amount budgeted for as overhead is less than the actual overhead incurred. This leads to cost of goods sold been understated. To correct for this, cost of goods sold should be adjusted retroactively. This reduces the amount of net income reported