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Underapplied overhead and Overapplied overhead are explained below.
Underapplied overhead refers to a circumstance in which a company's overhead expenses exceed what it budgets for in order to carry out its operations.
Underapplied overhead is typically reported on a company's balance sheet as a prepaid expense and is balanced by entering a debit to the cost of goods sold (COGS) section by the end of the financial year.
Costs of goods sold are the direct costs associated with a company's production of goods sold.
An unfavorable variance is the amount of underapplied overhead.
Underapplied overhead happens when a company's overhead expenses exceed its budget.
This estimate is disclosed on a company's balance sheet as a prepaid expense or short-term asset as a debit, which is then offset by a credit to prepaid expenses and a debit to the cost of goods sold before the end of the fiscal year.
Underapplied overhead is an unfavorable variance that occurs when a business exceeds its budget.
Analysts and managers examine trends that may indicate shifts in the business environment or economic cycle, so it is not generally regarded negatively.
Hence, above I have explained the underapplied overhead and overapplied overhead.
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