Coursework Student`s Name Institutional Coursework Question 2 Overheads are described as underapplied when a company`s initial approximations of overheads exceeds the actual overheads. Particularly, this situations arises when the company`s standard provision amount per unit of production fails to equal with the actual overheads that was incurred in the financial period (Drury, 2013). On the other hand, overheads are described as Overapplied when the company`s initial approximations of overheads fall short the actual overheads (Drury, 2013). At the end of the period, the disposition of underapplied and overapplied overheads considers the significance of the amount involved. In the event where the amount is negligible or immaterial it is treated as the cost of goods sold and closed. This is treated so because an underapplied overheads causes a debit balance which causes the cost of goods sold to increase (Drury, 2013). Similarly, an overapplied overhead leads to a credit balance that causes the cost of goods sold to decreases. Overhead might be underapplied in a given year due to the following reasons: First it can be underapplied due to poor management and control of overhead spending which might causes the estimate overhead cost to exceed the actual overhead cost. Second, overhead might be underapplied if some overheads are fixed while the actual allocation amount per unit for the period falls short than the actual estimated a
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