Normal Costing

Question 1

Normal costing system

Answer 1

Application of overhead using the budgeted overhead costs and budgeted quantity of allocation base BUT all other information in the costing system is based on actual costs

Question 2

Allocating overhead in normal costing

Answer 2

Budgeted overhead rate x actually quantity of allocation base

Question 3

Misapplied overhead

Answer 3

Occurs when budgeted overhead rate differs from the actual overhead rate

If less overhead is applied than actual incurred = underapplied overhead (or underallocated or underabsorbed)

If more overhead is applied than actually incurred = over applied (overallocated, over absorbed) overhead