Answer:
b. Products were overcosted in 2013
Explanation:
When determining the cost of a product, we consider only the Overheads Applied.
<u>Applied Overheads are calculated as :</u>
Pre-determined Overhead Rate <em>multiplied by </em>Actual Activity
<u>Predetermined Overhead Rate is calculated as follows :</u>
Budgeted Overheads <em>divided by</em> Budgeted Activity
Predetermined Overhead Rate = $25,000/2,000 units
= $ 12.50 per unit
Applied Overheads = $ 12.50 per unit × 2,200 units
= $ 27,500
The Overheads Applied are then <em>Compared to</em> Actual Overhead Cost to determine is the Overheads where Over or Under Applied
<u>Therefore our case presents the following:</u>
Applied Overheads ($ 27,500) >Actual Overheads ($25,000)
Therefore, we have an Over-Application situation.
Over-Applied Overheads are $2,500
