Answer: overhead was underapplied
Underapplied overhead = $820
Explanation:
Given the following ;
Estimated manufacturing overhead = $10,000
Estimated machine-hours = 25000
Actual Machine-hours = 26,200
Actual manufacturing overhead = $11,300
When applied overhead cost is greater than actual overhead, we have over application of overhead, and if applied overhead is less than the actual overhead, then overhead has been under applied.
To determine if manufacturing overhead has been over or under applied, we need to calculate the rate of predetermined overhead
Predetermined overhead rate = Estimated overhead cost ÷ estimated Machine-hours
Predetermined overhead = 10,000 ÷ 25,000 = 0.4
Therefore,
Applied manufacturing overhead = predetermined overhead rate × actual machine-hours
0.4 × $26,200 = $10,480
Therefore difference between applied and actual overhead =
Applied overhead - actual overhead
$10,480 - $11,300 = - $820
$820
Meaning overhead as been under applied