(Appendix 4B)When the predetermined overhead rate is based on the level of activity at capacity, underapplied manufacturing overhead may be called the Cost of Unused Capacity and treated as a period expense.

Question

Quizplus · Accepted Answer

When the predetermined overhead rate is based on the level of activity at capacity, any underapplied manufacturing overhead can be attributed to unused capacity. Since the cost is not tied to any specific product, it can be treated as a period expense. Therefore, it is true that underapplied manufacturing overhead may be called the Cost of Unused Capacity and treated as a period expense.

(Appendix 4B)When the Predetermined Overhead Rate Is Based on the Level