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17 May, 14:50

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

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  1. 17 May, 15:17
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    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.
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