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A company debits overhead applied account, debits cost of goods sold account and credits overhead costs account

Accounting

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A company debits overhead applied account, debits cost of goods sold account and credits overhead costs account. Why?

1. This is a wrong entry.
2. The company closes the applied accounts with the relevant cost account while selling a product.
3. The company is accounting for the normal capacity variance while closing the applied and cost accounts.
4. The company is adjusting the cost of goods sold account due to a damage in the production process.