If the allocated overhead exceeds the actual overhead, the difference is termed overapplied overhead. For instance, if a company estimated $100,000 in overhead costs but only incurred $90,000, and allocated $95,000 based on the predetermined rate, the overapplied overhead would be $5,000. The management of overapplied overhead has far-reaching implications for cost accounting practices within […]

This is due to the company needs to prepare the financial statements with the actual costs that really occur during the accounting period rather than the estimation that is based on the predetermined standard rate. As the manufacturing overhead applied during the period is an estimate, there is usually an underapplied or overapplied overhead that […]