Synergy Corp. manufactures LED light bulbs. It applies manufacturing overhead to production on the basis of direct labor hours. A predetermined overhead application rate of $15 per direct labor hour was used for the current fiscal year. Actual manufacturing overhead incurred by Synergy during the year amounted to $100,000 against 9,100 hours, which was the expected number of direct labor hours to be used during the year. Calculate the amount of over- or underapplied overhead during the year.

Under applied overhead of $36,500

Explanation:

With regards to the above , the over or under applied overhead is computed as;

Budgeted overhead = Predetermined overhead application rate per direct labor hour × Expected number of direct labor hours to be used

= $15 × 9,100

= $136,500

Actual manufacturing overhead incurred = $100,000

Budgeted overhead - Actual overhead incurred

= $136,500 - $100,000

= $36,500

The above is under applied over head because what was budgeted is less that what was actually incurred.