ECONOMICS

Detailed explanation-1: -A debit balance in manufacturing overhead shows either that not enough overhead was applied to the individual jobs or overhead was underapplied. If, at the end of the term, there is a credit balance in manufacturing overhead, more overhead was applied to jobs than was actually incurred.

Detailed explanation-2: -Underapplied overhead occurs when the amount in overhead expenses exceeds what a company budgets to maintain its operations. Companies record underapplied overhead on the balance sheet as a prepaid expense and then debit the cost of goods sold (COGS) against this amount at the end of the year.

Detailed explanation-3: -Underapplied overhead occurs when a business doesn’t budget enough for its overhead costs. This means the budgeted amount is less than the amount the business actually spends on its operations.

Detailed explanation-4: -Explanation: If the manufacturing overhead account has a debit balance then this means that the actual overhead incurred was more than the overhead costs applied to jobs. The overhead costs applied is based on a predetermined overhead rate.

Detailed explanation-5: -When overhead is underapplied, the excess amount of the actual overhead cost over the amount applied may be recorded as a short-term asset, on the assumption that it will be offset in a later period by an overapplication of overhead.