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Osborn Manufacturing uses a predetermined overhead rate of $19.80 per direct labor-hour. This predetermined rate was based on a cost formula that estimates $269,280 of total manufacturing overhead for an estimated activity level of 13,600 direct labor-hours. The company incurred actual total manufacturing overhead costs of $265,000 and 13,100 total direct labor-hours during the period.
Required:
1. Determine the amount of underapplied or overapplied manufacturing overhead for the period.
Manufacturing overhead overapplied/underapplied (choose one) by ________.
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 would decrease/increase (choose one) by ________.

Respuesta :

ayokenny2001

Answer:

1. Under applied ($5,620)

2. Cost of goods sold debit $5,620

Factory overhead credit $5,620

It increase their cost of goods sold by $5,620 while their gross profit would also decrease by $5,620

Explanation:

1. Overhead rate = Cost of manufacturing overhead / Cost driver

= $269,280 / 13,600

= $19.8

Applied actual hours × rate

= 13,100 × $19.80

= $259,380

Actual

($265,000)

Under applied overhead

($5,620)

2. Sales - Cost of goods sold = Gross profit

Sales - (cost of goods sold + $5,620 adjustment) = Gross profit

Sales - cost of goods sold - $5,620 = Gross profit

It therefore means that the gross profit decreased by $5,620