If a manufacturer underestimated the manufacturing overhead budget and overestimates the activity base for the year, what is the result?
A) Overapplied factory overhead
B) Underapplied factory overhead
C) Overstated finished goods inventory
D) Understated work in process inventory

Question

Quizplus · Accepted Answer

If a manufacturer underestimates the manufacturing overhead budget and overestimates the activity base for the year, it means that the actual overhead costs incurred are higher than estimated. As a result, the applied overhead (based on the overestimated activity base) will be lower than the actual overhead, resulting in underapplied overhead.

If a Manufacturer Underestimated the Manufacturing Overhead Budget and Overestimates