Ans . 1 | Manufacturing overhead Under applied by $4,620. | |||
*Calculations: | ||||
Overhead applied = Actual direct labor hours * Predetermined overhead rate | ||||
12,700 * $19.40 | ||||
$246,380 | ||||
Under applied overhead = Actual overhead - Applied overhead | ||||
$251,000 - $246,380 | ||||
$4,620 | ||||
If the applied overhead is less than the Actual overhead | ||||
it means that the overhead is under applied. | ||||
Ans. 2 | The gross margin would decrease by $4,620. | |||
*Calculations & Explanations: | ||||
Under applied overhead increases the cost of goods sold amount. | ||||
The following journal entry is made to this transaction: | ||||
Particulars | Debit | Credit | ||
Cost of goods sold | $4,620 | |||
Manufacturing overhead | $4,620 | |||
(under applied overhead closed to cost of goods sold) | ||||
Gross margin is the difference of sales and cost of goods sold. Therefore, increase in cost of goods sold | ||||
will decrease the gross margin by the same amount. | ||||
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