Q. 17-20RQ - Horngren'S Financial And Managerial Accounting

Question

If a company incurred \(5,250 in actual overhead costs and allocated \)5,575 to jobs, was the overhead overallocated or underallocated? By how much?

Step-by-Step Solution

Answer

The company allocate the overhead expense more than the actual overhead. Hence, the overhead was overallocated by the amount $325.

                                                                               

Actual overhead

The overheads which are actually incurred by an organization during the year is known as the actual overhead. It is different from the allocated overhead, because the allocated overhead is based on the estimated rate of allocation.

Under allocation or over allocation overhead

$$\begin{gathered} \mathrm{Overallocate} \mathrm{overhaed} =\mathrm{allocated} \mathrm{overhead} - \mathrm{actual} \mathrm{overhead} \\ =\$5,575-\$5,250 \\ =\$325 \end{gathered}$$

The company overallocates the overhead expenses by the amount of $325.