If a manufacturer underestimated the manufacturing overhead budget and overestimates the activity base for the year, what is the result?

A) Overapplied factory overhead
B) Underapplied factory overhead
C) Overstated finished goods inventory
D) Understated work in process inventory

Manufacturing Overhead Budget

A financial plan that estimates the expected indirect production costs, excluding direct materials and direct labor.

Activity Base

A measure or statistic that is used as the basis for allocating costs in activity-based costing.

Overapplied Factory Overhead

The condition where the allocated factory overhead costs exceed the actual factory overhead expenses.