Question

Armour, Inc., an advertising agency, applies overhead to jobs on the basis of direct professional labor hours. Overhead was estimated to be $160,000, direct professional labor hours were estimated to be 20,000, and direct professional labor cost was projected to be $360,000. During the year, Armour incurred actual overhead costs of $159,000, actual direct professional labor hours of 19,500, and actual direct labor cost of $265,000. By year-end, the firm's overhead was___________.

Answer 1

Answer:

Firm's overhead/Overhead Under Applied=$3,000

Explanation:

First calculate predetermined overhead:

Predetermined overhead= Estimated Overhead / Estimated labor hour

Predetermined overhead=$\frac{\ 160,000}{20,000}$

Predetermined overhead=$8 per labor hour

Overhead Applied=Predetermined overhead * actual direct professional labor hours..

Overhead Applied=$8 per labor hour*19,500

Overhead Applied=$156,000

Since Overhead Applied is less than actual overhead, so difference is under applied.

Overhead Under Applied=Actual overhead costs-Overhead Applied

Overhead Under Applied=$159,000-$156,000

Firm's overhead/Overhead Under Applied=$3,000