Question

Sagon Corporation has provided data concerning the Corporation's Manufacturing Overhead account for the month of September. Prior to the closing of the overapplied or underapplied balance to Cost of Goods Sold, the total of the debits to the Manufacturing Overhead account was $87,000 and the total of the credits to the account was $62,000. Which of the following statements is true?

Answer 1

Actual manufacturing overhead costs are DEBITED whereas applied manufacturing overhead costs are credited to manufacturing overhead account.

Actual overhead costs are debited as they are incurred whereas applied overhead costs are credited as they are applied to work in process.

At the end of a period, if manufacturing overhead account shows a debit balance, it means the overhead is under-applied. On the other hand; if it shows a credit balance, it means the overhead is over-applied.

In the given case, we have a Total Debits i.e. Actual Expenses of $87,000 ,however, we have Total Credits i.e. applied of $62,000. Therefore, Overheads are under-applied by $25,000