Business Degree Certification Practice Test

If a manufacturer has estimated factory overhead costs and actual machine hours, what is the result of $30,000 in estimated costs and $28,000 in actual costs for 3,800 hours worked?

1. $500 overapplied

2. $500 underapplied

3. $2,000 overapplied

4. $2,000 underapplied

The correct answer is: $500 overapplied

To determine whether overhead costs are overapplied or underapplied, it's important to compare estimated factory overhead costs to actual overhead costs incurred. In this scenario, the manufacturer has estimated overhead costs of $30,000 and has actual costs totaling $28,000. Since the estimated costs exceed the actual costs, this indicates that the overhead was applied more than what was actually incurred during production. To quantify this, we calculate the difference between the estimated and actual overhead costs: Estimated costs: $30,000 Actual costs: $28,000 Difference: $30,000 - $28,000 = $2,000 In this case, because the estimated costs are higher than the actual costs, the overhead costs have been overapplied by $2,000. This implies that the manufacturer allocated more overhead to products than was actually necessary based on the actual incurred costs. Thus, the conclusion is that the overhead is overapplied by $2,000. The answer selected here reflects this conclusion, correctly identifying the relationship between estimated and actual costs.