Creative Lighting Inc. makes specialty table lamps. Manufacturing overhead is applied to production on a direct labor hours basis. During June, the first month of the company’s fiscal year, $110,880 of manufacturing overhead was applied to Work in Process Inventory using the predetermined overhead application rate of $12 per direct labor hour.

Required:

a. Calculate the number of hours of direct labor used during June.

b. Actual manufacturing overhead costs incurred during June totaled $106,680. Calculate the amount of over- or underapplied overhead for June.

c. Identify two possible explanations for the over- or underapplied overhead.

d. Explain the accounting appropriate for the over- or underapplied overhead at the end of June.