tb mc qu. 7 - 73 (algo) travis companys records show that overhead was... travis companys records show that…

tb mc qu. 7 - 73 (algo) travis companys records show that overhead was... travis companys records show that overhead was overapplied by $16,000 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 $10,000 of depreciation on factory equipment was charged to administrative expense in error. given the above information, which of the following statements is true? multiple choice the $10,000 in depreciation should have been charged to work - in - process rather than to administrative expense. the companys net income is understated by $10,000 for the year. manufacturing overhead was actually overapplied by $26,000 for the year. under the circumstances posed above, the error in recording depreciation would have no effect on operating income for the year.

tb mc qu. 7 - 73 (algo) travis companys records show that overhead was... travis companys records show that overhead was overapplied by $16,000 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 $10,000 of depreciation on factory equipment was charged to administrative expense in error. given the above information, which of the following statements is true? multiple choice the $10,000 in depreciation should have been charged to work - in - process rather than to administrative expense. the companys net income is understated by $10,000 for the year. manufacturing overhead was actually overapplied by $26,000 for the year. under the circumstances posed above, the error in recording depreciation would have no effect on operating income for the year.

Answer

Explanation:

Step1: Understand manufacturing overhead

Manufacturing overhead includes factory - related costs like factory equipment depreciation. It should not be charged to administrative expense.

Step2: Analyze the impact of mis - classification

When $10,000 of factory equipment depreciation was wrongly charged to administrative expense, it understated manufacturing overhead. Since overhead was overapplied by $16,000 originally, the actual over - application is $16,000 + 10,000=26,000$.

Answer:

Manufacturing overhead was actually overapplied by $26,000 for the year.