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CSS Financial and Cost Accounting P-1 QUESTION #1206
Question 1
Over-applied overhead means:
  • Actual overheads are less than applied overheads.✔️
  • Actual overheads are greater than applied overheads.
  • Fixed costs were not allocated properly.
  • Direct labor costs were overstated.
Correct Answer Explanation
Overhead is applied to production using a predetermined rate. Over-applied overhead occurs when the applied overhead (predetermined rate × actual activity) exceeds the actual overhead incurred. In other words, actual overheads < applied overheads. This means production was charged more overhead than was actually spent.