Hamilton Company applies manufacturing overhead costs to products based on direct labor hours. The company estimates manufacturing overhead cost for the year to be $260,000 and direct labor hours to be 20,000. Actual overhead and actual direct labor hours for the year were $285,000 and 23,000 hours, respectively.

Required:

1. Compute over- or underapplied overhead.

2a. Which accounts will be affected by the over- or underapplied manufacturing overhead?

2b. Will the accounts be increased or decreased to adjust for the over- or underapplied manufacturing overhead?