ECONOMICS

Detailed explanation-1: -Most businesses overcome these variations and the waiting by using a predetermined (or estimated) overhead rate. Applied overhead, which is the amount of manufacturing overhead that’s assigned to the goods that are produced, is typically done by using a predetermined rate.

Detailed explanation-2: -You can calculate applied manufacturing overhead by multiplying the overhead allocation rate by the number of hours worked or machinery used. So if your allocation rate is $25 and your employee works for three hours on the product, your applied manufacturing overhead for this product would be $75.

Detailed explanation-3: -In short, the main difference between the two concepts is that actual overhead is the amount of cost actually incurred, while applied overhead is the standard amount of overhead applied to cost objects. Given this difference, the two figures are rarely the same in any given year.

Detailed explanation-4: -Actual manufacturing overhead costs are the indirect manufacturing costs incurred periodically throughout the year in the production process. Manufacturing overhead applied are the overhead costs added or applied to each job during the production process.