Question

At the end of a period, what balance should remain in the Factory Overhead account?

Short answer

The balance in factory overhead balancecan either be debit or credit depending upon the actual and budgeted cost difference.

Step-by-step solution

Definition of Process Costing

The costing method used by the business entity to allocate operational costs to the goods produced in mass is known as process costing. It is used by the business entity whose product passes through different processes.

Factory overhead account

An expense account maintained by the business entity for reporting the manufacturing expenses incurred other than the direct cost is known as a factory overhead account.

Balance that should remain in the factory overhead account

The balance in the factory overhead account must be under-applied or over-applied. If the balance is over-applied, then it means that the actual cost incurred as factory overheads is lower than the cost budgeted for the same. In this case, the account will have a credit balance.

If the factory overheads are under-applied, then the budgeted cost of factory overheads is less than the actual cost incurred in the same. In this case, the account will have a debit balance.