Ferguson Company recognized $400 of estimated manufacturing overhead costs at the end of the month. How does this transaction affect the financial statements?

Question

Liam Walls

Business

9 December, 02:32

Ferguson Company recognized $400 of estimated manufacturing overhead costs at the end of the month. How does this transaction affect the financial statements?

+2

Answers (1)

Know the Answer?

Mckay · Answer 1

This leads to a reduction in net income

Explanation:

Manufacturing overheads refer to those costs which indirectly relate to a good's production. Examples of manufacturing overheads would include depreciation charged on equipments used for production, rent of the factory wherein production takes place.

The effect of recognition of $400 of estimated manufacturing overheads would be reduction in net income since their recognition raises the cost of production which reduces gross profit. Consequently this would reduce the net income.