Mason Company uses a job-order cost system and applies manufacturing overhead to jobs using a predetermined overhead rate based on direct-labor dollars. The rate for the current year is 200 percent of direct-labor dollars. This rate was calculated last December and will be used throughout the current year. Mason had one job, No. 150, in process on August 1 with raw materials costs of $2,000 and direct-labor costs of $3,000. During August, raw materials and direct labor added to jobs were as follows:
Raw materials Direct labor
No. 150 $ − 1,500
No. 151 $ 4,000 5,000
No. 152 $ 1,000 2,500
Actual manufacturing overhead for the month of August was $20,000. During the month, Mason completed Job Nos. 150 and 151. For August, manufacturing overhead was:
a. Overapplied by $4,000.
b. Underapplied by $7,000.
c. Underapplied by $1,000.
d. Underapplied by $2,000.
.