What does "applied overhead" refer to?

Applied overhead refers to the estimated overhead costs that are allocated to products based on predetermined rates. This process involves estimating what the manufacturing overhead will be for a given period and using that estimate to apply overhead costs to individual products or job orders as they are produced. This allocation is typically done to provide a more accurate representation of product costs during the production process, allowing for better pricing and profitability analysis.

In manufacturing, applied overhead is crucial because it helps ensure that all costs associated with production are included when determining product pricing and profitability. This method is based on the premise that not all actual costs can be known until the end of the accounting period, but allocating estimated overhead helps guide financial decisions in the interim.

The other options do not accurately describe applied overhead. Actual manufacturing overhead costs incurred describes costs that have already been incurred, which does not involve estimation. All costs related to selling and administrative expenses are separate from manufacturing costs and overhead, focusing instead on operation costs outside production. Lastly, total variable costs of production refer to costs that vary with production volume, which does not specifically pertain to overhead allocation but rather to direct costs that fluctuate with output levels.