The following calendar year information about the Tahoma Corporation is available on December 31:
Advertising expense....................................................................$ 28,800
Depreciation of factory equipment.....................................................42,320
Depreciation of office equipment......................................................10,800
Direct labor 142,600 Factory utilities..................................................35,650
Interest expense............................................................................6,650
Inventories, January 1:
Raw materials..............................................................................3,450
Goods in process.........................................................................17,250
Finished goods...........................................................................35,650
Inventories, December 31:
Raw materials..............................................................................2,300
Goods in process.........................................................................20,700
Finished goods...........................................................................31,050
Raw materials purchases...............................................................132,450
Rent factory building...................................................................41,400
Indirect labor.............................................................................51,750
Sales commissions.......................................................................16,500
The company applies overhead on the basis of 125% of direct labor cost.
a. Calculate the amount of over-or under-applied overhead.
b. What is the significance of this over-or under-applied amount of overhead?