The costs listed below are related to Chang Company's manufacturing operations for the most recent fiscal year: Total COGS $890,000
What is underapplied or overapplied overhead cost for the year?
- Underapplied overhead is a circumstance in which overhead costs exceed the amount that a business really budgets for in order to operate.
- On a company's balance sheet, unapplied overhead is often shown as a deferred item that is balanced by adding a debit to the cost of goods sold (COGS) section before the end of the year.
- The direct expenses incurred during the manufacture of the products a business sells are known as the costs of goods sold.
- An unfavourable variance is the amount of underapplied overhead.
- Underapplied overhead is when a company's real overhead costs exceed its budgeted costs.
- On a company's balance sheet, this amount is shown as a prepaid expense or short-term asset as a debit, which is subsequently balanced out by a credit for prepaid expenses and a debit for the cost of products sold before the end of the fiscal year.
- A negative variance results from underapplied overhead when a company exceeds its budget.
- Because analysts and managers seek trends that might indicate changes in the business environment or economic cycle, it is often not viewed negatively.
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