What is Fixed Manufacturing Overhead Applied?

Fixed manufacturing overhead applied is the amount of fixed production costs that have been charged to units of production during a reporting period. This overhead application is conducted in order to include the full set of manufacturing costs in the cost of each item produced, rather than just the costs of direct materials and direct labor. This inclusion of overhead costs gives management better information about how to set prices for the goods being sold, as well as to determine the fully-burdened profit margin on each product.

If the overhead application rate is based on actual fixed costs incurred, then the amount of overhead applied should match the amount incurred. If the overhead application rate is instead based on a standard application rate, then the amount applied may be higher or lower than the actual cost incurred.