Investopedia explains 'Underapplied Overhead'
For example, an overhead of $100,000 was incurred, but only $90,000 was applied. This is referred to as an unfavorable variance because it means that the budgeted costs were lower than actual costs and thus the cost of goods sold of the product were more than expected.
The initial predetermined overhead cost rate is calculated by taking the budgeted overhead costs divided by the budgeted activity.
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