What Are Three Possible Ways to Dispose of Underallocated or Overallocated

question 71

Essay

What are three possible ways to dispose of underallocated or overallocated overhead costs at the end of a fiscal year? Briefly comment on the theoretical correctness or incorrectness of each method.

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Definitions:

Net Cash Flow

The amount of money being transferred in and out of a business, reflecting the company's operating, investing, and financing activities over a period.

Absorption Costing

A cost accounting method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed manufacturing overhead - in the cost of a product.

Division Managers' Salaries

Compensation paid to individuals overseeing distinct business units or divisions within a larger organization.

Segment Reports

Financial reports that break down a company's operations, revenues, and expenses by distinct segments, such as geographical regions or product lines.