Sharp Company’s records show that overhead was over applied

Sharp Company’s records show that overhead was over applied by $10,000 last year. This over applied manufacturing overhead was closed out to the Cost of Goods Sold account at the end of the year. In trying to determine why overhead was over applied by such a large amount, the company has discovered that $6,000 of depreciation on factory equipment was charged to administrative expense in error. Given the above information, which of the following statements is true?

Select one:

a. Manufacturing overhead was actually over applied by $16,000 for the year.

b. The company’s net income is understated by $6,000 for the year.

c. Under the circumstances posed above, the error in recording depreciation would have no effect on net operating income for the year.

d. The $6,000 in depreciation should have been charged to Work in Process rather than to administrative expense.