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Sagot :
Sanders inc. has applied $567,988 of overhead to jobs. actual overhead at the end of the year is $575,000. the adjustment for over- or underapplied overhead is $7,012 underapplied, increase in Cost of Goods Sold
When a company doesn't budget enough for its overhead expenditures, underapplied overhead results. This indicates that the budgeted amount was lower than what the company actually spent on operations.
The total amount of factory operational costs that aren't allocated to various production units are known as underapplied overhead. This issue arises when the standard allocation amount per unit of production differs from the actual amount of overhead expenses incurred during a reporting period.
Underapplied overhead is recorded as a prepaid expense or a short-term asset on a company's balance sheet, as was mentioned above. This balance sheet debit must be offset at a later time. The company's accounting department typically enters a debit by year's end to the COGS section and a credit to the prepaid expenses section to reconcile this.
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