Recording overhead costs in a T-account Calhoun Manufacturing Company incurred actual overhead costs of $59,600 during 2006. It uses direct labor dollars as the allocation base for overhead costs. In 2006, actual direct labor costs were $84,000, and overhead costs were underapplied by $800.

Required

a. Calculate the predetermined overhead rate for 2006.

b. Open T-accounts for Manufacturing Overhead and Cost of Goods Sold. Record the overhead costs and the adjusting entry to close Manufacturing Overhead in these accounts.

c. Explain how the entry to close the Manufacturing Overhead account at the end of 2006 would affect the amount of net income reported on the 2006 income statement.