Asked by Nicholas Boren on Jul 03, 2024
Verified
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
Overapplied Overhead
A situation where the allocated manufacturing overhead cost is more than the actual overhead cost incurred.
Underapplied Overhead
Occurs when the allocated overhead costs are less than the actual overhead costs incurred.
Job Costing System
A cost accounting system that tracks the expenses of a specific job against its revenue to determine profitability.
- Distinguish and interpret the differences in underapplied versus overapplied manufacturing overhead and their implications for financial health.
- Acquire knowledge of the importance of manufacturing overhead in determining product costs and the techniques for its apportionment and correction.
Verified Answer
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.
Learning Objectives
- Distinguish and interpret the differences in underapplied versus overapplied manufacturing overhead and their implications for financial health.
- Acquire knowledge of the importance of manufacturing overhead in determining product costs and the techniques for its apportionment and correction.
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