Sharp Company's Records Show That Overhead Was Overapplied by $10,000

question 38

Multiple Choice

Sharp Company's records show that overhead was overapplied by $10,000 last year.This overapplied overhead was closed out to the Cost of Goods Sold account at the end of the year.In trying to determine why overhead was overapplied by such a large amount,the company has discovered that $6,000 of depreciation on factory equipment was charged to administrative expense in error.Given the above information,which of the following statements is true?

• A) Manufacturing overhead was actually overapplied by $16,000 for the year.
• B) The company's net income is understated by $6,000 for the year.
• C) Under the circumstances described above, the error in recording depreciation would have no effect on net income for the year.
• D) The $6,000 in depreciation should have been charged to Work in Process rather than to administrative expense.

---

Definitions:

Judicial Review

A legal principle that allows courts to determine the constitutionality of legislative and executive acts.

Original Meaning

The interpretation of the Constitution or law based on the intent and understanding of those who drafted and ratified it.

Living Constitution

The concept that the Constitution has a dynamic meaning or that it has the properties of a living organism and can adapt to changing societal needs without formal amendments.

Writ of Certiorari

A court order from a higher court to a lower court to send up the records of a case for review, often used by the Supreme Court to select cases it wishes to hear.