If the actual overhead is more than the allocated overhead, how are the jobs affected?

When actual overhead exceeds allocated overhead, the jobs are considered to be undercosted. This occurs because the overhead costs incurred exceed what was originally budgeted or estimated for those jobs.

In a job costing system, overhead costs are allocated to jobs based on a predetermined overhead rate, which is typically based on estimated costs. If the actual overhead costs realized during production surpass those allocated to jobs, it indicates that the jobs incurred additional expenses that were not accounted for in the cost estimates. As a result, the total cost assigned to these jobs does not fully reflect the true economic resources consumed; thus, the jobs appear to be undercosted.

This undercosting can have significant implications for pricing decisions, profitability analysis, and financial reporting, as it misrepresents the actual cost of production. Recognizing this difference is crucial for managers to ensure accurate cost accounting and to make informed decisions based on the true costs connected to each job.