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?

A) $5000 underapplied
B) $5000 overapplied
C) $7500 underapplied
D) $7500 overapplied

Question

Ariella Garland · Accepted Answer

Final Answer : C, Explanation :  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 RateApplied Overhead = 14,500 x $5Applied Overhead = $72,500Overhead Variance = Actual Overhead - Applied OverheadOverhead Variance = $80,000 - $72,500Overhead Variance = $7,500 underappliedTherefore, the answer is C, $7500 underapplied.

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