Question

At the current year-end, Ruiz Company found that its overhead was underapplied by $2,500, and this amount was not considered material. Based on this information, what should Ruiz do?

1) Adjust the overhead by $2,500 to correct the underapplied amount
2) Ignore the underapplied amount as it is not considered material
3) Increase the overhead by $2,500 to account for the underapplied amount
4) Seek professional advice to determine the appropriate action

Answer 1

Based on the information provided, Ruiz Company should ignore the underapplied amount as it is not considered material.

Step-by-step explanation:

Based on the information provided, Ruiz Company should ignore the underapplied amount as it is not considered material.

When overhead is underapplied, it means that the actual overhead costs incurred by the company are greater than the overhead costs allocated or applied to the production. In this case, the underapplied amount is $2,500. However, the question states that this amount is not considered material, which means it is not significant enough to impact the company's financial statements or decision making.

Therefore, Ruiz Company does not need to make any adjustments to the overhead or seek professional advice in this situation.