Brainpower Pty Ltd is an advertising agency that uses a job costing system. Brainpower applies overhead to jobs based on direct professional labour hours. At the beginning of the year, overhead was estimated to be $75 000, direct professional labour hours were estimated to be 15 000, and direct professional labour cost was projected to be $225 000. During the year, Brainpower incurred actual overhead of $80 000, actual direct labour hours of 14 500 and actual direct labour cost of $222 000. What was Brainpower's overapplied or underapplied overhead during the year?

Question

Brainpower Pty Ltd is an advertising agency that uses a job costing system. Brainpower applies overhead to jobs based on direct professional labour hours. At the beginning of the year, overhead was estimated to be $75 000, direct professional labour hours were estimated to be 15 000, and direct professional labour cost was projected to be $225 000. During the year, Brainpower incurred actual overhead of $80 000, actual direct labour hours of 14 500 and actual direct labour cost of $222 000. What was Brainpower's overapplied or underapplied overhead during the year?

Quizplus · Accepted Answer

To calculate the overapplied or underapplied overhead, we need to compare the actual overhead incurred with the applied overhead based on the estimated rate ($75,000/15,000 DLH = $5 per DLH).

Applied Overhead = Actual DLH x Estimated Rate
Applied Overhead = 14,500 x $5
Applied Overhead = $72,500

Overhead Variance = Actual Overhead - Applied Overhead
Overhead Variance = $80,000 - $72,500
Overhead Variance = $7,500 underapplied

Therefore, the answer is C, $7500 underapplied.

Brainpower Pty Ltd Is an Advertising Agency That Uses a Job