Derrald Company manufactures snowboards. Estimatedcosts for Year 1 were as follows:

Direct Labor $31,000

Bonuses paid to factory supervisors 9,000

Interest expense 32,000

Depreciation on manufacturing equipment 18,000

Indirect labor 11,000

Direct materials 36,000

Income tax expense 26,000

Indirect materials 14,000

Property taxes on the corporate office building 18,000

Estimated direct labor hours were 40,000. Actual data for Year 1 are as follows: Total manufacturing overhead: $120,000. Direct labor hours: 60,000 hours. The predetermined manufacturing overhead rate is determined on the basis of direct labor hours. What is the amount of over- or underapplied overhead for Derrald Company for Year 1?

$40,000 UNDERapplied

$10,000 UNDERapplied

$26,000 UNDERapplied

$16,000 OVERapplied

$42,000 UNDERapplied

$68,000 UNDERapplied

$55,500 UNDERapplied