Farnham & Associates is a literary consulting firm in New York. The following costs were incurred in a project to design a dust cover for a new novel:Direct material$29,000Direct professional labor42,000The firm's budget for the year included the following estimates:Budgeted overhead$800,000Budgeted direct professional labor640,000Overhead is applied to contracts by using a predetermined overhead rate that is based on direct professional labor cost. Actual professional labor during the year was $655,000 and actual overhead was $793,000.Required: A. Determine the total cost to design the cover of the novel.B. Calculate the under- or overapplied overhead for the year. Be sure to label your answer.
What will be an ideal response?
| A. | Direct material | $29,000 |
| ? | Direct professional labor | 42,000 |
| ? | Applied overhead ($42,000 × 125%*) | 52,500 |
| ? | ? | $123,500 |
| ? | * $800,000 ÷ $640,000 = 125% | ? |
| ? | ? | ? |
| B. | Applied overhead ($655,000 × 125%) | $818,750 |
| ? | Actual overhead | 793,000 |
| ? | Overapplied overhead | $25,750 |
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