Question

A company assigned overhead to work in process. At year end, what does the amount of overapplied overhead mean?

The overhead assigned to work in process is greater than the estimated overhead costs.

The overhead assigned to work in process is less than the estimated overhead costs.

The overhead assigned to work in process is less than the actual overhead.

The overhead assigned to work in process is greater than the overhead incurred.

Answer 1

Concepts and reason

Work in process: Technically, total work in process cost includes the beginning work in process costs and the total manufacturing overheads introduced during the period. Work in process cost is the sum of all costs like direct materials, direct labor, and manufacturing overheads introduced in the production process during the period to get converted into the finished product.

Fundamentals

Over-applied overheads: Actual manufacturing overheads are recorded in the debit side of the manufacturing overheads account and assigned overheads are recorded on the credit side of the manufacturing overheads account. If actual overheads are lesser than the estimated overheads then, it is said to be over-applied overheads. In this condition manufacturing overhead account shows the credit balance means a total of the credit side is greater than the total of the debit side.

Under-applied overheads: Actual manufacturing overheads are recorded in the debit side of the manufacturing overheads account and allocated overheads are recorded on the credit side of the manufacturing overheads account. If actual overheads are greater than the applied overheads then, it is said to be under-applied overheads. In this condition manufacturing overhead account shows the debit balance means a total of the debit side is greater than the total of the credit side.

Determine the incorrect option regarding overapplied overheads:

The overhead assigned to work in process is greater than the estimated overhead costs. The overhead assigned to work in process is less than the estimated overhead costs. The overhead assigned to work in process is less than the actual overhead. These are incorrect options.

Determine the correct option regarding the overapplied overheads:

If the overhead assigned to work in process is greater than the overhead incurred then, it is said to be over-applied. This is the correct option regarding over-applied overhead.

Ans:

The overhead assigned to work in process is greater than the overhead incurred then, it is said to be over-applied.