Media Inc., an advertising agency, applies overhead to jobs on the basis of direct professional labour hours. Overhead costs were estimated to be $150,000, direct professional labour hours were estimated to be 15,000, and direct professional labour cost was projected to be $225,000. During the year, Media incurred actual overhead costs of $146,000, actual direct professional labour hours of 14,500, and actual direct labour cost of $222,000. By year-end, the firm's overhead was:

Question

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Overhead application rate = $150,000/15,000 hours = $10 per hourApplied overhead = $10 x 14,500 hours = $145,000Actual overhead = $146,000Underapplied overhead = $146,000 - $145,000 = $1,000

Media Inc, an Advertising Agency, Applies Overhead to Jobs on the the Basis