The correct answer is B. over allocated indirect cost.
In normal costing, indirect costs are allocated to products or services based on a predetermined rate. The allocated amount of indirect cost is the total amount of indirect cost that is allocated to products or services during a period. The incurred cost of indirect cost is the total amount of indirect cost that is actually incurred during a period.
If the allocated amount of indirect cost is greater than the incurred cost of indirect cost, then the company has over allocated indirect cost. This means that the company has allocated more indirect cost to products or services than it actually incurred.
There are a few reasons why a company might over allocate indirect cost. One reason is that the company might have used an inaccurate predetermined rate. Another reason is that the company might have incurred more indirect cost than it expected.
Over allocated indirect cost can have a negative impact on a company’s financial statements. This is because over allocated indirect cost will increase the cost of goods sold and decrease the gross profit. This can lead to a decrease in net income.
To avoid over allocating indirect cost, companies should carefully select a predetermined rate and monitor their actual indirect costs.