Chapter 4, Problem 4.12Q

To determine

Concept introduction:

Manufacturing costs can be divided into two categories based on its allocation; direct costs, indirect costs. Direct costs are directly traceable to a unit of production such as direct material cost and direct labor cost. Indirect costs are directly traceable to a unit of production such as indirect material cost and indirect labor cost. Indirect costs are also known as overhead costs.

Manufacturing overhead costs are applied to the production units using allocation rate(s).

To indicate: the adjustment for under applied and over applied overhead costs.