The Custom Guitar Company uses a predetermined overhead rate of $5 per machine hour to apply overhead. During the year, 32,500 machine hours were worked. Actual manufacturing overhead cost for the year was $187,500. Company records showed the following account balances at the end of the year:

Materials $ 22,500

Work in process 37,500

Finished goods 50,000

Cost of goods sold 112,500

Required:

a. Determine the amount of underapplied or overapplied overhead (indicate if underapplied or overapplied).

b. Assuming the amount of underapplied or overapplied overhead is material, prepare the journal entry to dispose of the variance at the end of the year (Round to the nearest dollar).

c. Assuming the amount of underapplied or overapplied overhead is immaterial, prepare the journal entry to dispose of the variance at the end of the year (Round to the nearest dollar).