Which type of overhead is applied to WIP?

The correct choice highlights the concept of applied manufacturing overhead (MOH) as it is relevant to Work in Progress (WIP). Applied MOH is the estimated overhead that is allocated to products during an accounting period based on a predetermined overhead rate. This rate is generally calculated before the period begins, using estimated data on costs and activity levels.

Applied MOH is crucial for providing a more accurate picture of production costs. By applying overhead costs to WIP, organizations can ensure that all costs associated with production are represented adequately in financial statements and reporting. This process is important for cost control and pricing strategies, making it central to managerial accounting practices.

In contrast, other types of overhead listed in the options focus on different aspects of overhead management. Actual MOH refers to the actual costs incurred during a period, which are usually reconciled at the end of the accounting cycle. Estimated MOH pertains to expected overhead costs used for budgeting purposes but doesn't represent what is actually applied during production. Indirect MOH generally describes costs that cannot be traced directly to a specific product, which can be part of both applied and actual overhead depending on how they are managed.

Thus, applied MOH is the most relevant type of overhead when discussing WIP, as it represents