Question

Overapplied manufacturing overhead would result if:

A. the plant was operated at less than normal capacity.
B. manufacturing overhead costs incurred were less than manufacturing overhead costs charged to production.
C. manufacturing overhead costs incurred were greater than manufacturing overhead costs charged to production.
D. manufacturing overhead costs incurred were less than estimated manufacturing overhead costs.

Answer 1

Overapplied manufacturing overhead occurs when actual manufacturing costs are less than the allocated overhead costs, denoted as option B. It can result from efficiency gains or lower overhead expenses.

Step-by-step explanation:

Overapplied manufacturing overhead would result if manufacturing overhead costs incurred were less than manufacturing overhead costs charged to production. This situation is represented by option B. When actual manufacturing overhead costs are less than what was allocated based on the estimated overhead rate, it results in overapplied overhead. This scenario could occur for various reasons, such as efficiency improvements, cost savings, or lower-than-expected utility usage or indirect material costs.

In the broader context of production economics, diseconomies of scale become relevant when a company grows too large, which can lead to increased costs due to complexities in management and communication as mentioned with the example of large factories and planned economies like the old Soviet Union.