ECONOMICS

Detailed explanation-1: -Underapplied overhead is normally reported as a prepaid expense on a company’s balance sheet and is balanced by inputting a debit to the cost of goods sold (COGS) section by the end of the year.

Detailed explanation-2: -A credit balance at the end of the period in the manufacturing overhead account indicates that the overhead is overapplied. When the applied overhead is more than the actual overhead, the overhead is said to be overapplied.

Detailed explanation-3: -If, at the end of the term, there is a debit balance in manufacturing overhead, the overhead is considered underapplied overhead. A debit balance in manufacturing overhead shows either that not enough overhead was applied to the individual jobs or overhead was underapplied.

Detailed explanation-4: -If manufacturing overhead has a credit balance, the overhead is overapplied, and the resulting amount in cost of goods sold is overstated.