Question

If actual overhead is greater than applied manufacturing overhead, then manufacturing overhead is: Select one:

a. underapplied.
b. overapplied.
c. a loss on the income statement under "Other Expenses and Losses."
d. considered a miscellaneous expense.

Answer 1

a. under applied.

Step-by-step explanation:

For computing, whether it is under applied or over applied first, we have to compute the predetermined overhead rate. The formula is shown below:

Predetermined overhead rate = (Total estimated manufacturing overhead) ÷ (estimated direct labor-hours)

Now we have to find the applied overhead which equal to

= Actual direct labor-hours × predetermined overhead rate

So, the ending overhead equals to

= Actual manufacturing overhead - applied overhead

= under-applied

If actual overhead is more than the applied overhead