A job order cost system uses a predetermined overhead rate based on estimated activity and estimated manufacturing overhead cost. At the end of the year, underapplied overhead might be explained by which of the following situations?
A)
B)
C)
D)
Actual activity
Actual manufacturing overhead costs
Greater than estimated
Greater than estimated
Greater than estimated
Less than estimated
Less than estimated
Greater than estimated
Less than estimated
Less than estimated
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The correct answer is C.
How to solve this kind of problem?
And I am confused why A is wrong. Suppose the estimated cost is 100, and estimated labor hour is 50, so the predetermined overhead rate is 2. In choice A, the actual activity is greater than estimated (suppose it is 60), and the actual overhead costs are grater than estimated (suppose it is 150). Because the predetermined overhead rate is 2, so overhead applied is 120. 120 is less than 150, so isn’t A correct? I am very confused
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