Problem:
Mosso Company applies manufacturing overhead to production using a predetermined overhead based on machine hours each quarter. Because demand for the company's product has been soft, planned production level for the most recent quarter was significantly below the company's capacity. Since manufacturing overhead for company is entirely fixed, the controller is concerned that this has distorted applied overhead and cost per unit. Below are data for the quarter :
- Machine Hours Estimated At Beginning Of Quarter: 81,000
- Machine Hours Capacity: 85,000
- Actual Machine Hours At End of Quarter: 80,400
- Total Manufacturing Overhead Estimated at Beginning Of Quarter: 688,500
- Total Manufacturing Overhead at Capacity: 688,500
- Actual Total Manufacturing Overhead at End of Quarter: 685,008
Requirement:
Question: If the company bases its predetermined overhead rate on capacity, by how much was manufacturing overhead underapplied or overapplied?
A) Underapplied by $1,608
B) Underapplied By $33,768
C) Overapplied by $3,492
D) Overapplied by $1,608
E) Overapplied by $33,768
F) Underapplied by $3,492
Note: Please show how to work it out.