If actual overhead costs are less than the amount of overhead applied to production,this indicates that manufacturing overhead is over-applied.

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Quizplus · Accepted Answer

This is because applied overhead is based on a predetermined rate multiplied by the actual amount of direct labor or machine hours used in production. If the actual amount of overhead costs incurred is less than the amount applied, it means that too much overhead was allocated to the product, resulting in an over-application of manufacturing overhead.

If Actual Overhead Costs Are Less Than the Amount of Overhead