The correct answer is: A. under allocated indirect cost.
An indirect cost is a cost that cannot be easily traced to a specific product or service. Indirect costs are often allocated to products or services based on a predetermined allocation base, such as direct labor hours or machine hours.
In this case, the allocated amount of indirect cost is $700 and the actual amount is $800. This means that the indirect cost was under allocated by $100. This can happen for a number of reasons, such as inaccurate estimates of indirect costs or changes in the level of activity.
Under allocated indirect costs can have a number of negative consequences. For example, they can lead to inaccurate product costing and pricing. They can also lead to lower profits for the company.
To avoid under allocated indirect costs, companies should carefully estimate their indirect costs and regularly review their allocation bases. They should also make sure that their accounting systems are accurate and up-to-date.
Here is a brief explanation of each option:
- Option A: Under allocated indirect cost. This is the correct answer. The allocated amount of indirect cost is $700 and the actual amount is $800. This means that the indirect cost was under allocated by $100.
- Option B: Over allocated direct cost. This is not the correct answer. Direct costs are costs that can be easily traced to a specific product or service. In this case, the question is about indirect costs, not direct costs.
- Option C: Over allocated budget. This is not the correct answer. The question is about indirect costs, not the budget.
- Option D: Under allocated budget. This is not the correct answer. The question is about indirect costs, not the budget.