Chilczuk, S.A., of Gdansk, Poland, is a major producer of classic Polish sausage. The company uses a standard cost system to help control costs. Manufacturing overhead is applied to production on the basis of standard direct labor-hours. According to the company's flexible budget, the following manufacturing overhead costs should be incurred at an activity level of 17,000 labor-hours (the denominator activity level): 42,500 Variable manufacturing overhead cost 76,500 Fixed manufacturing overhead cost 119,000 Total manufacturing overhead cost During the most recent year, the following operating results were recorded: Activity: 14,000 Actual labor-hours worked Standard labor-hours allowed for output 15,000 Cost: variable manufacturing overhead cost incurred 49,000 63,750 Actual fixed manufacturing overhead cost incurred At the end of the year, the company's Manufacturing Overhead account contained the following data Manufacturing Overhead Actual 112,750 Applied 105,000 7,750 Management would like to determine the cause of the $7,750 underapplied overhead