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Nanjones applies overhead based on planned machine hours using a predetermined annual rate. The amount of planned variable manufacturing overhead was $2,400,000 and amount of planned machine hours were 240,000. Thus, the application rate for variable manufacturing overhead was $10 per hour ($2,400,000 / 240,000). Under standard costing -- which is being used here because the problem tells us that overhead is applied based on planned machine hours -- overhead to be applied is calculated by multiplying the predetermined rate by the amount of (in this case) machine hours that should have been used for the amount actually produced . The problem tells us that the planned machine hours based on output was 21,000, and therefore, the amount of variable overhead applied was $10 × 21,000, or $210,000. The actual variable overhead incurred was $214,000. Therefore, variable manufacturing overhead was underapplied by $4,000.