A public accounting firm employs 10 full-time professionals who provide services to clients. All professional labour compensation is traced directly to clients on a per professional labour-hour basis. Any other costs are Included in a single Indirect-cost pool (same as overhead) and allocated to individual clients according to billable professional labour-hours.

Operating costs and data for the year included the following:

Required:

1. Calculate the amount of overhead cost underapplied or overapplied.

2. Prepare a summary journal entry to close any underapplied or overapplied overhead cost to a Cost of Services Provided account (similar to Cost of Goods Sold account for a manufacturing company).

3. Explain why overhead was either underapplied or overapplied.

Overhead (indirect) costs Number of billable professional labour-hours Total professional compensation Estimated $1,000,000 40,000 750,000 Actual $1,200,000 50,000 750,000