ECONOMICS

Detailed explanation-1: -If the under applied factory overhead amount is immaterial, it is transferred to cost of goods sold at the end of the fiscal year. Conversion costs are normally added evenly throughout the production process. The job order costing system is not used by the service organizations.

Detailed explanation-2: -Cost of goods sold (COGS) includes all of the costs and expenses directly related to the production of goods. COGS excludes indirect costs such as overhead and sales & marketing.

Detailed explanation-3: -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.

Detailed explanation-4: -Cost of Goods Sold (COGS) measures the “direct cost” incurred in the production of any goods or services. It includes material cost, direct labor cost, and direct factory overheads, and is directly proportional to revenue.