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Overapplied or underapplied overhead; equivalent units

After posting all actual factory overhead and applying factory overhead to production departments in a process costing system,

A There will never be underapplied overhead.
B There will never be overapplied overhead.
C There will always be underapplied overhead.
D There will always be overapplied overhead.
E There may be over or underapplied overhead.

To compute an equivalent unit of production, one must be able to reasonably estimate:

A The percentage of completion.
B Units completed.
C Units started and completed.
D Direct labor cost.
E Materials cost.

Solution Preview

1. Because factory overhead is an estimated amount to be applied based on the number of units or processes completed, it would probably never be exactly match the actual amount of factory overhead. Because it won't exactly match, there could be an overapplied or an underapplied amount.

An example might help you understand the concept better. Let's use the rent: ...

Solution Summary

The solution provides the answers for both questions including a good explanation with examples.

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