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 on factory building .......................................................... 41,400
Indirect labor ................................................................................. 51,750
Sales commissions ..................................................................... 16,500
The company applies overhead on the basis of 125% of direct labor costs.
a. Calculate the amount of over- or under-applied overhead.
b. What is the significance of this over- or under-applied amount of overhead?