If a Company Applies Overhead to Production with a Predetermined

question 13

Multiple Choice

If a company applies overhead to production with a predetermined overhead rate, a credit balance in the Factory Overhead account at the end of the period means that:

• A) The overhead was underapplied for the period.
• B) Actual overhead was greater than the overhead amount applied to production.
• C) The bookkeeper has made an error because the debits don't equal the credits.
• D) The balance will be carried forward to the next period as an overhead cost.
• E) Actual overhead incurred was less than the overhead amount applied to production.

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Definitions:

Budgeted Costs

Projected expenses for a specified period under budgetary control, guiding spending and financial planning.

Fixed Costs

Costs that do not vary with the level of production or sales over a certain period, such as rent, salaries, and insurance.

Variable Costs

Costs that change in proportion to the level of production or business activity.

Overhead Efficiency Variance

A measure used in cost accounting to analyze the difference between the budgeted overhead costs and the actual overhead costs based on efficient use of resources.