Answer: $200 Underallocated
Explanation: Overhead costs refers to expenses incurred by a business organization which are not directly related to operating expenses such as cost of labor, equipments or materials. Overhead cost may include rent, cost of repair, and advertisement.
Overallocation or underallocation of manufacturing overhead is the difference between the applied manufacturing overhead and the actual manufacturing overhead.
Overallocation occurs when applied manufacturing overhead cost is greater than the actual manufacturing overhead incurred during a certain period.
Underallocation occurs when applied manufacturing overhead is less than the actual manufacturing overhead cost over a certain period.
In the exercise above,
Applied overhead - actual overhead
$2600 - $2800 = - $200
Overhead =$200 Underallocated,
Applied manufacturing overhead is less than the actual manufacturing overhead cost.
