Question

If a company applies overhead to production with a predetermined overhead rate, a credit balance in the Factory Overhead account at the end of the period means that: Select one: a. Actual overhead was greater than the overhead amount applied to production. b. The overhead was underapplied for the period. c. The bookkeeper has made an error because the debits don't equal the credits. d. Actual overhead incurred was less than the overhead amount applied to production. e. The balance will be carried forward to the next period as an overhead cost.

Answer 1

Answer:

d) Actual overhead incurred was less than the overhead amount applied to production.

Explanation:

A credit balance in the overhead account implies that overhead is over applied. When overhead is applied the production work in progress,the accounting entries are to debited work in progress and credit  the  factory overhead the amount of overhead absorbed.

On the other hand, the actual overhead is debited to the factory  overhead e account and and credited to their respective indirect material, indirect labour and indirect expenses.

The difference between the amount debited and and credited to the overhead is the over or under applied overhead. A credit and debit balance represent over and under applied overhead respectively

Answer 2

Answer:

Option D. Actual overhead incurred was less than the overhead amount applied to production.                

Explanation:

The reason is that during the period, the accountant keeps posting entry of overhead expense at the predetermined rate, which must be adjusted at the end of the period. So if the expense account is been debited, then it means the actual overhead expense was lower than the expense been anticipated. So the right option is D.