Question 9.5: An online book retailer allocates equal overhead to each boo...
An online book retailer allocates equal overhead to each book sold. At the beginning of the year, the retailer estimates that 1 million books will be sold and that overhead will be $2 million. What is the over- or under absorbed overhead, if 1 million books are sold and overhead is $2.1 million?
The application rate is $2,000,000/1,000,000 books, or $2/book. If 1 million books are sold, the bookseller allocates (1,000,000 books × $2/book), or $2,000,000. The under absorbed overhead is $2,100,000 $2,000,000, or $100,000.
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