Question

Armour, Inc., an advertising agency, applies overhead to jobs on the basis of direct professional labor hours. Overhead was estimated to be $207,000, direct professional labor hours were estimated to be 23,000, and direct professional labor cost was projected to be $414,000. During the year, Armour incurred actual overhead costs of $203,700, actual direct professional labor hours of 22,500, and actual direct labor cost of $302,000. By year-end, the firm's overhead was:

Answer 1

Budgeted overhead per direct professional labor hour= $207,000 / 23,000

= $9

Actual direct labor hours = 22,500

Revised Budgeted overhead per actual direct professional labor hour = 22,500*$9

= $202,500

Difference between actual and budgeted overhead = actual overhead - Budgeted overhead

= $203,700 - $202,500

= $1,200

Since budgeted amount is less than the actual amount overhead is under applied by $1,200.