Question

Media, Inc., an advertising agency, applies overhead to jobs on the basis of direct professional labor hours. Overhead was estimated to be $152,000, direct professional labor hours were estimated to be 19,000, and direct professional labor cost was projected to be $285,000.
During the year, Media incurred actual overhead costs of $149,300, actual direct professional labor hours of 18,500, and actual direct labor cost of $279,000.

By year-end, the firm's overhead was:


a)$1,300 underapplied.

b)$1,300 overapplied.

c)$2,700 underapplied.

d)$2,700 overapplied.

e)$4,000 underapplied.

Answer 1

Answer:

b)$1,300 overapplied.

Explanation:

over head is paid on the basis of professional labor cost. Therefore overhead rate is: 152000/19000 = $8

over head payable for the year = (professional labor cost * $8)

= 18500* $8

= $148000

over head actually paid for the year: $ 149,300

difference is: $149300 - $148000 = $1,300 overapplied.