If overhead is applied on the basis of direct labor hours, and actual hours worked are less than budgeted, which of the following is true, assuming estimated overhead is correct?
A) Overhead is probably overapplied.
B) Overhead is probably underapplied.
C) Applied overhead and actual overhead are equal.
D) None of these is true.

Question

Quizplus · Accepted Answer

Since actual hours worked are less than budgeted, less direct labor was used than estimated in the overhead application rate calculation. This would result in less overhead being applied than actual overhead, causing overhead to be underapplied.

If Overhead Is Applied on the Basis of Direct Labor