16-516-12 Factory overhead will be overapplied when the amount of factoryoverhead applied during a period exceeds the amount of factory overheadincurred during that period. Overapplication can occur when incurredcosts are less than expected or when actual production activity isgreater than expected. Factory overhead will be underapplied when theamount of factory overhead applied is less than the amount of factoryoverhead incurred during a period.When factory overhead is under (over)applied, the amount of factoryoverhead applied to goods manufactured and to goods sold is less than(more than) the actual cost incurred in the production. By adjustingthe balance in the Cost of Goods Sold account, a company moreaccurately reflects the actual cost of manufacturing the goods it sold.
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