The effect of overhead on product costs Starco Music, Inc. manufactures an upright piano that has the following production costs:

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Direct labor Direct materials. Manufacturing overhead. $200 450 150 $800 The piano sells for $1,000 yielding a gross margin of $200. The company's manufacturing overhead rate is a percentage of direct labor cost. During the accounting period just completed, actual manufacturing overhead was 18 percent more than the amount of overhead applied.