Question

Using normal costing to cost units of production, Steven Harper Co. has gathered the following information:
Fixed manufacturing overhead was estimated to be $120,000 for the year.
Actual production was 40,000 units.
Actual fixed manufacturing overhead costs incurred were $125,000.
What is the result of this difference between the estimated fixed overhead and actual fixed overhead?

The difference is expensed as a period cost the way variable costing immediately expenses fixed overhead as a period cost.

The difference is over or under-applied overhead that if immaterial, will be closed out to cost of goods sold at year end.

The difference will be held in inventory and taken to cost of goods sold when the units are sold next year.

There is no difference.

Answer 1

The correct answer is

The difference is over or under-applied overhead that if immaterial, will be closed out to cost of goods sold at year end.

Explanation

the company applied overhead based on standard rate. Any difference between the overheads applied and actual overheads which are immaterial are closed in the cost of goods sold and are expensed through the cost of goods sold. So the correct answer is

The difference is over or under-applied overhead that if immaterial, will be closed out to cost of goods sold at year end.