If an allocated indirect cost is $1500 and the actual incurred indirect cost is $1200, then this is classified as __________?
Correct answer: D. over allocated indirect cost
- A. applied indirect cost
- B. applied direct cost
- C. incurred indirect cost
- D. over allocated indirect cost
Explanation
Allocated overhead of $1,500 exceeds the actual incurred overhead of $1,200 by $300, so the overhead is overallocated. The reverse situation would be underallocation.
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About Cost Accounting
Cost accounting measures and analyses the cost of producing goods or providing services for planning, control and pricing decisions. It covers direct and indirect costs, fixed and variable costs, job and process costing, break-even analysis, marginal costing, overhead allocation, and the difference between product cost and period cost.
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