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The management of Bagger Corporation would like to investigate the possibility of basing its predetermined overhead...

The management of Bagger Corporation would like to investigate the possibility of basing
its predetermined overhead rate on activity at capacity. The company controller has provided
an example to illustrate how this new system would work. In this example, the allocation base
is machine-hours and the estimated amount of the allocation base for the upcoming year is
81,000 machine-hours. In addition, capacity is 95,000 machine-hours and the actual level of
activity for the year is 84,900 machine-hours. All of the manufacturing overhead is fixed and
is P 6,617,700 per year. For simplicity, it is assumed that this is the estimated manufacturing
overhead for the year as well as the manufacturing overhead at capacity. It is further assumed
that this is also the actual amount of manufacturing overhead for the year. If the company bases
its predetermined overhead rate on capacity, by how much was manufacturing overhead
underapplied or overapplied?

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