Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 12

What do underapplied overhead and overapplied overhead mean? How are these amounts disposed of at the end of a period?

Step 1 of 3

Overhead:

Overhead refers to the indirect expenses which are not directly attributable to the business and hence, need to be allocated on some predetermined basis. Example of overhead cost can be indirect material, depreciation, Administrative expenses etc.

Since overhead are applied on a predetermined basis, it can be over applied or under applied at the end of the period.