Morton Companys variable manufacturing overhead should be $4.50 per standard direct labor-hour and fixed manufacturing should be $270,000 per year. The company manufactures a single product that requires two direct labor-hours to complete. The direct labor wage rate is $15 per hour. Four feet of raw material are required for each unit of product; the standard cost of the material is $8.75 per foot. Although normal activity is 30,000 direct labor-hours each year, the company expects to operate at a 40,000-hour level of activity this year.

Assume that the company actually produces 18,000 units and works 38,000 direct labor-hours during the year. Actual manufacturing overhead costs for the year are:

Variable manufacturing overhead cost...... $174,800

Fixed manufacturing overhead cost.......... 271,600

Total manufacturing overhead cost.......... $446,400

Determine the cause of the underapplied or overapplied overhead for the year by computing the variable overhead rate and efficiency variances and the fixed overhead budget and volume variances.