Why might overhead be under-applied and how can you prevent it? Explain predetermined overhead rate and show its computation. What is the best allocate base to use and why? What factors do you consider when deciding on an allocation base?
Name two reasons why overhead might be under-applied in a given year and how this might be able to be prevented?
The under or over applied is a difference between the predetermined overhead rate and the application of overhead during the period. An under applied means that less was applied than was spent. One way to have this is to spend less than budget and so you applied "as if" you were going to spend $500,000 but in fact spent $450,000. Another way is to expect more activity than occurred. That is, create a rate that is based on high activity but then have low activity. Here's an ...
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