1. Osborn Manufacturing uses a predetermined overhead rate of $19.20 per direct labor-hour. This predetermined rate was based on a cost formula that estimates $249,600 of total manufacturing overhead for an estimated activity level of 13,000 direct labor-hours.
The company actually incurred $247,000 of manufacturing overhead and 12,500 direct labor-hours during the period.
Required:
- Calculate the underapplied or overapplied manufacturing overhead.
- Assume the company’s underapplied or overapplied overhead is closed to Cost of Goods Sold. Would the closing journal entry increase or decrease gross margin? By how much?
