(Appendix 5A)If the predetermined overhead rate is based on the estimated total amount of the allocation base at capacity,it is more likely that overhead will be underapplied than overapplied.

Question

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This is because if the actual amount of the allocation base used during the period is less than the estimated amount at capacity, then the applied overhead will be less than the actual overhead, resulting in underapplied overhead. However, if the actual amount of the allocation base used exceeds the estimated amount at capacity, then the applied overhead will be greater than the actual overhead, resulting in overapplied overhead.

(Appendix 5A)If the Predetermined Overhead Rate Is Based on the Estimated