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With respect to production costs, manufacturing overhead accumulates in the account and is applied to Work In Process based on the predetermine overhead rate or activity based cost rates. It is rare that manufacturing overhead is cleared out naturally by this process. If you have a debit balance in manufacturing overhead, the accounting department ________ has applied manufacturing overhead to the WIP accounts. Is this over or under applied. If the amount remaining at the end of the year is insignificant, the adjustment to clear the remaining manufacturing overhead balance is made to what other account?

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Answer:

With respect to production costs, manufacturing overhead accumulates in the account and is applied to Work In Process based on the predetermine overhead rate or activity based cost rates. It is rare that manufacturing overhead is cleared out naturally by this process. If you have a debit balance in manufacturing overhead, the accounting department has under-applied manufacturing overhead to the WIP accounts. Is this over or under applied. If the amount remaining at the end of the year is insignificant, the adjustment to clear the remaining manufacturing overhead balance is made to what other account? Answer is:  Cost of Goods Sold account

Debit balance in Overhead account = Actual Overheads which are more than Applied Overhead. This makes applied overhead be UNDER-APPLIED.

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