Assume that a company allocates manufacturing overhead on the basis of machine hours. At the beginning of the year, the company estimated using 60,000 machine hours and $120,000 of manufacturing overhead. The company actually used 65,000 machine hours and incurred $120,000 of manufacturing overhead.
Before making any adjustments, manufacturing overhead at the end of the year was:
$10,000 underapplied
$10,000 overapplied
$5,000 underapplied
$5,000 overapplied