Question

Osborn Manufacturing uses a predetermined overhead rate of $19.30 per direct labor-hour. This predetermined rate was based on a cost formula that estimates $252,830 of total manufacturing overhead for an estimated activity level of 13,100 direct labor-hours. The company actually incurred $249,000 of manufacturing overhead and 12,600 direct labor-hours during the period. ints 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? eBook Print References 3. The gross me dire moeid 1. Manufacturing overhead 2. The gross margin would

Answer 1

1. Overhead applied = 12600 x $19.30 = $243180
Actual Overhead = $249000
Since Overhead applied is lower than actual, overhead is under applied
Under applied Overhead = $249000 - $243180 = $5820

Gross Margin will decrease by $5820
It is because Cost of Goods Sold will increase

3. Overhead applied = 21600 x $28 = $604800
Actual Overhead = $593600
Since Overhead applied is greater than actual, overhead is over applied
Over applied Overhead = $604800 - $593600 = $11200

Cost of Goods Manufactured Schedule
Direct Materials
Raw Material Inventory	$                21,900
Raw Material Purchases	$              419,000
Total Raw Material available for use	$              440,900
Less : Raw Material Inventory	$                31,900
Direct Material Used in production	$              409,000
Less : Indirect Materials	$                16,900	$                392,100
Direct Labor		$                  79,000
Manufacturing Overhead applied		$                604,800
Total Manufacturing Costs		$            1,075,900
Beginning Work in process inventory		$                  41,900
		$            1,117,800
Less: Ending Work in Process inventory		$                  71,900
Cost of goods manufactured		$            1,045,900