Principles of Managerial Accounting · free preview
Underapplied and Overapplied Overhead
Because predetermined overhead rates rest on estimates, applied overhead rarely equals actual overhead, and the difference, underapplied or overapplied, is closed to cost of goods sold or allocated across the inventory accounts at period end.
1. Measuring the gap
Measuring the gap
2. Closing to cost of goods sold
Closing to cost of goods sold
3. Allocating across accounts
Allocating across accounts
4. Reading the signal
Reading the signal
5. Gap classification
Actual overhead is 495,000 dollars and applied overhead is 480,000 dollars. How is the gap classified?
6. Income effect of underapplication
Closing 15,000 dollars of underapplied overhead to cost of goods sold affects the income statement how?
7. Allocation proportions
Ending balances hold 10 percent of applied overhead in work in process, 20 percent in finished goods, and 70 percent in cost of goods sold. Allocate 15,000 dollars of underapplied overhead across the accounts.
8. Persistent underapplication signal
A company is underapplied overhead three years running. What is the most likely lesson?
9. Overapplied direction
When applied overhead exceeds actual overhead, the gap is called ____ overhead. One word.
10. Allocation driver
The allocation of overhead gaps follows the proportions of applied ____ residing in each account. One word.
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