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Q: Prepare the entry to apply the overhead for the year?
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Why does a POHR cause under or over applied overhead?

It's because the POHR is only an estimate. Both the cost driver and the estimated total manufacturing overhead costs in the ratio are based on past figures. You don't know what it will actually be for the year until the actual costs come in when the year is over. Obviously, the estimate won't exactly equal the actual. When it is over or under applied you must do a correcting journal entry. If overhead were over applied by 30,000 for example, you would debit Manufacturing overhead for the amount and credit COGS


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