When Actual Overhead Cost Exceeds Overhead Applied to Production

question 46

Multiple Choice

When actual overhead cost exceeds overhead applied to production,

• A)over-absorbed overhead is added to cost of goods sold.
• B)over-absorbed overhead is deducted from cost of goods sold.
• C)under-absorbed overhead is added to cost of goods sold.
• D)under-absorbed overhead is deducted from cost of goods sold.

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Definitions:

Operating Expense

An ongoing expense incurred in the operation of a business, such as rent, utilities, and salaries.

Operating Profit

Earnings before interest and taxes, calculated by subtracting operating expenses from gross profit.

Mark-up

The difference between the cost of a good or service and its selling price, expressed as a percentage over the cost.

Unit Cost

The expense associated with creating, storing, or purchasing a single unit of a product or service.