Jack is reviewing the predetermined overhead rate used to estimate the welding overhead cost Year 1. The estimated total welding overhead cost is $ 300,000 and the estimated level of activity is 6,000 machine-hours.
By the end of the year, Fridges-R-Fun incurred actual total manufacturing overhead cost for welding of $320,000 and 5,800 total machine hours.
1. Determine the amount of underapplied or overapplied manufacturing overhead for Year 1.
2. What is the implication of having large overapplied or underapplied overhead to the management planning and product costing?