XYZ Company uses a job-order costing system and applies manufacturing overhead to jobs using a predetermined overhead rate based on direct labor-hours. Last year manufacturing overhead and direct labor-hours were estimated at $75,000 and 30,000 hours, respectively, for the year. At the end of the year, it was determined that the company worked 29,000 direct labor-hours for the year and incurred $77,000 in actual manufacturing overhead costs.

Required: Determine the overhead rate XYZ used per direct labor-hour during the year.

Determine the underapplied or overapplied overhead for the year. Be sure to state if it is underapplied or overapplied.