Question

Check my work Osborn Manufacturing uses a predetermined overhead rate of $19.00 per direct labor-hour. This predetermined rate was based on a cost formula that estimates $243,200 of total manufacturing overhead for an estimated activity level of 12800 direct labor hours The company actually incurred $241000 of manufacturing overhead and 12,300 direct labor hours during the period. Required: 1. Determine the amount of underapplied or overapplied manufacturing overhead for the period. 2. Assume that the company's underapplied or overapplied overhead is closed to Cost of Goods Sold. Would the journal entry to dispose of the underapplied or overapplied overhead increase or decrease the company's gross margin? By how much? 1. Manufacturing overhead underapplied 2. The gross margin would decrease by by

Answer 1

1. Manufacturing overhead applied = Actual direct labor-hours × Predetermined overhead rate = 12,300 × $19.00 = $233,700

Manufacturing overhead underapplied = Manufacturing overhead incurred - Manufacturing overhead applied = $241,000 - $233,700 = $7,300

Manufacturing overhead underapplied by $7,300

2. The gross margin would decrease by $7,300