Question

Manufacturing overhead is _______________if actual manufacturing overhead costs for a period are greater than the amount of manufacturing overhead cost that was applied to Work in Process.

Answer 1

Answer:

overapplied

Explanation:

When we say that manufacturing costs were overapplied, it means that at the beginning of the production process the estimated costs were too high. In other words, the budget considered that it would cost more money to produce the goods.

In this case, overhead costs tend to be overestimated and then overapplied because they rely on past data and efficiency can improve, which lowers costs; or the total production output can be lower than estimated, therefore the company incurred in less costs.

Depending on the cause of the actual lower costs it can be good or bad. If the costs were lower due to improved efficiency, then it is very good. But if the costs were lower due to a lower output, then that is not good.