Stalk Products Has $27,000 of Underapplied Overhead at the End

question 138

Multiple Choice

Stalk Products has $27,000 of underapplied overhead at the end of the year. Management has asked you what the impact on income will be if you prorate the underapplied overhead to the appropriate accounts. What will you tell them?

• A) Income will be higher if the underapplied overhead is prorated than if it is closed to cost of goods sold.
• B) Income will be lower if the underapplied overhead is prorated than if it is closed to cost of goods sold.
• C) Income will be the same regardless of which method is used.
• D) The answer depends on the reason that the underapplied exists.

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Definitions:

Financial Theory

A branch of economics that aims to understand and explain how financial markets operate, the structure of capital markets, and the pricing of financial instruments.

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