Is applied than is actually incurred the remaining

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ECON MICRO
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Chapter 7 / Exercise 9
ECON MICRO
McEachern
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is applied than is actually incurred, the remaining debit balance in the Factory Overhead account is calledunderapplied overhead.When the overhead applied in a period exceeds the overhead incurred, the resultingcredit balance in the Factory Overhead account is called overapplied overhead.In either case, a journalentry is needed to adjust Factory Overhead and Cost of Goods Sold. Exhibit 19.14 summarizes this entry.EXHIBIT 19.14Adjusting Factory OverheadDPage 790Underapplied or Overapplied OverheadP4 Determine adjustments for overapplied and underapplied factory overhead.To illustrate, assume that Road Warriors actually incurred other overhead costsof $5,550 instead of the$5,070 shown in Exhibit 19.11. This yields an actual total overhead cost of $7,200 in March. Since theamount of overhead applied was only $6,720, the Factory Overhead account is left with a $480 debit balance
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ECON MICRO
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Chapter 7 / Exercise 9
ECON MICRO
McEachern
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Example:If we do not adjust for underapplied overhead, will net income be overstated or understated?
Quick CheckAnswers — p. 7969. In a job order cost accounting system, why does the Factory Overhead account usually have anoverapplied or underapplied balance at period-end?10. When the Factory Overhead account has a debit balance at period-end, does this reflect overapplied orunderapplied overhead?GLOBAL VIEWPorsche AGmanufactures high-performance cars. Each car is built according to individual customerspecifications. Customers can use the Internet to place orders for their dream cars. Porsche employs just-in-time inventory techniques to ensure a flexible production process that can respond rapidly to customer orders.For a recent year, Porsche reported 33,781 million in costs of materials and 9,038 million in personnelcosts, which helped generate 57,081 million in revenue.Page 791

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