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

question 48

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:

Expenditure

Money spent or cost incurred in an organization's efforts to generate revenue, representing the cost of doing business.

Bank Reconciliation

The process of comparing a company's bank account balance as reported by the bank with the company's own records and reconciling any differences.

Deposit in Transit

Funds that have been sent to a bank but not yet recorded on the bank's records, often seen in bank reconciliation statements.

Outstanding Checks

Checks that have been written and recorded in a company's financial statements but have not yet been cashed or cleared by the bank.