overapplied overhead

Definitions (2)
Popular Terms
1. Excess of overhead applied to work-in-process inventory over the amount of overhead actually incurred. This amount (called favorable variance) is added to the budgeted profit in the end-of-accounting-period financial statements. Also called overabsorbed overhead. See also underapplied overhead.
2. A situation in which the overhead applied to a work in progress (WIP) product is more than the overhead that the WIP actually incurs. This results in the manufacturing overhead having a credit balance. Overapplied overhead is reported on the balance sheet and is reported as unearned revenue.
At the end of the year, overapplied overhead is balanced by creating a credit to Cost of Goods Sold. Opposite of underapplied overhead.


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