COST ACCOUNTING
MANUFACTURING OVERHEAD
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The actual overhead incurred is less than the overhead that has been charged to production
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Actual overheads have fallen in relation to what they were expected to be
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The overhead charged to production is lower than the actual overhead incurred
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The basis of apportioning overheads has changed during the period
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Detailed explanation-1: -If the overhead absorbed is lower than the actual overheads incurred during the accounting period, it is called under absorption.
Detailed explanation-2: -Answer and Explanation: If overhead applied is less than actual overhead incurred, it is: b. Underapplied. If actual overhead incurred during an accounting period is greater than the amount of overhead applied to a job, this means overhead was underapplied to that particular job.
Detailed explanation-3: -Underapplied overhead occurs when the amount in overhead expenses exceeds what a company budgets to maintain its operations. Companies record underapplied overhead on the balance sheet as a prepaid expense and then debit the cost of goods sold (COGS) against this amount at the end of the year.
Detailed explanation-4: -If overhead is over absorbed, this means that fewer actual overhead costs were incurred than expected, so that more cost is applied to cost objects than were actually incurred. This means that the recognition of expense is reduced in the current period, which increases profits.
Detailed explanation-5: -Underapplied overhead is the opposite of overapplied overhead. Overapplied overhead occurs when expenses incurred are actually less than what a company accounts for in its budget. This means that a company comes in under budget and achieves a lower amount of overhead costs during the accounting period.