A job order cost system uses a predetermined factory overhead rate based on expected volume and expected fixed costs. At the end of the year, under applied overhead might be explained by which of the following situations?

Actual volume: Actual fixed Cost:

Less than normal; Greater than expected

Explanation:

Job order costing may be utilized for numerous different businesses, and each business retains records for one or more inventory accounts. The manufacturing industry keeps a trail of the costs of each inventory account as the product is shifted from raw materials inventory into work in process, through work in process, and into the finished goods inventory

Actual Volume = if the total output is less than expected, the estimated overhead rate will be under applied. In the formula for calculating overhead rate, if the denominator reduces, the result will increase.

Actual Fixed Costs = if the total overhead costs are higher than expected, the estimated overhead rate will be under applied. In the formula for calculating overhead rate, if the numerator increases, the result will increase.

Explanation:

overhead rate = total estimated fixed costs ÷ total estimated output

                        = $ per unit of output

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