Osborn Manufacturing uses a predetermined overhead rate of $18 direct labor-hour

Question

Osborn Manufacturing uses a predetermined overhead rate of $18 direct labor-hour. This predelermined rate was based on a cost formula that estimates 240uo of total manufacturing overthoad for an estimated activity level of 12,700 direct labor hours The company incurred actual total manufacturing overhead costs of $237,000 and 12,200 total direct labor hours during the period Required: 1. Determine the amount of underapplied or overapplied manufacturing overhead for the period 2. Assuming that the entire amount of the underapplied or overapplied overhead is closed out to cost of goods sold, what would be the effect of the underapplied or overapplied overhead on the company's gross margin for the period? The gross margin here to search

Explanation / Answer

1 Manufacturing overhead applied 230580 =12200*18.9 Less: Manufacturing overhead incurred 237000 Manufacturing overhead underapplied 6420 2 The gross margin would decrease by $6420

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