Overapplied Overhead

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Overapplied Overhead

In accounting, a record of the overhead for a work-in-process product that is greater than the overhead actually is. This may happen for any number of reasons. Because overapplied overhead means profits are higher than the records say they should be, it is added to a company's profit at the end of the accounting period. It is also called overabsorbed overhead. See also: Underapplied overhead.
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If the four presses are filled to 90% of capacity, they will generate $1,676,768 in sales, of which $756,000 is over-absorbed overhead (4 presses x $35/hr x 120 hr/wk x 50 wk/yr x 90%).
EFFECT OF PRODUCTIVITY & SALES INCREASES ON 20-MACHINE MOLDING PLANT Current 20% Increased 20% Increased Operation, Productivity, in Sales, 20 Presses 16 Presses 4 Presses Fixed & Variable Overhead All overhead $3,780,000 $3,742,500 Over-Absorbed Overhead $718,500 Labor 20 operators x $10/hr x 3 shifts x 40 hr/wk x 50 wk/yr $1,200,000 16 operators x $10/hr x 3 shifts x 40 hr/wk x 50 wk/yr $960,000 4 operators x $10/hr x 3 shifts x 40 hr/wk x 50 wk/yr $240,000 Material @34.