ECONOMICS

Detailed explanation-1: -Answer: Underallocated overhead occurs when actual manufacturing overhead costs are more than allocated manufacturing overhead costs. Overallocated overhead occurs when actual manufacturing overhead costs are less than allocated manufacturing costs.

Detailed explanation-2: -If manufacturing overhead has a debit balance, the overhead is underapplied, and the resulting amount in cost of goods sold is understated. The adjusting entry is: If manufacturing overhead has a credit balance, the overhead is overapplied, and the resulting amount in cost of goods sold is overstated.

Detailed explanation-3: -Explanation: Under-allocated overhead occurs when allocated overhead costs are less than actual overhead costs. Allocated overhead is usually knowned as the applied overhead which is also the budgeted or estimated overhead based on actual output of the business.

Detailed explanation-4: -Underapplied overhead indicates that the actual amount of factory overhead incurred was greater than expected. For example, the standard allocation rate might be designed to allocate $200, 000 of factory overhead to units of production, and there is an under-application of $25, 000.