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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

a. What is (1) overapplied factory overhead and (2) underapplied factory overhead?

b. If the factory overhead account has a debit balance, was factory overhead underapplied or overapplied?

(a.1)

To determine

Predetermined overhead

Factory overhead costs are applied or allocated to cost of job based on predetermined factory overhead rate. The formula to calculate the predetermined factory overhead rate is as follows:

Predetermined factory overhead rate = Estimated total factory overhead costsEstimated activity rate

To state: the meaning of overapplied factory overhead.

Explanation

If the amount of factory overhead applied is greater than the actual factory overhead incurred by the company, factory overhead is overapplied. For example:

Overapplied overhead = Factory overhead applied 

(a.2)

To determine

To state: the meaning of underapplied factory overhead.

(b)

To determine

To explain: if factory overhead is underapplied or overapplied if factory overhead has debit balance.

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