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Unformatted text preview: selling and administrative costs should be treated as period expenses and charged directly to the income statement. Note that when the allocation base is dollars the predetermined overhead rate is expressed as a percentage of the allocation base. When dollars are divided by dollars, the result is a percentage. underapplied happens when actual cost is higher than predetermined cost (theres a debit in MOH). overapplied happens when actual cost is lower than predetermined cost (theres a credit in MOH). Because overhead was underapplied, not enough cost was applied to jobs. Hence, the cost of goods sold was understated. Adding the underapplied overhead to the cost of goods sold corrects this understatement....
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- Spring '11