Factory overhead can be over- or under-applied because:

Question

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Factory overhead can be over- or under-applied because production volume may vary from expected volume. If actual production volume is different from what was originally estimated, the actual factory overhead costs incurred will also be different from what was budgeted, leading to over- or under-applied overhead. A and B may be factors as well, but C is the most direct cause. D is not relevant as actual costing is simply the process of using actual costs to calculate COGS, and does not impact the calculation of applied factory overhead.

Factory Overhead Can Be Over- or Under-Applied Because