Treatment of over- or underapplied overhead Gray Company and Greene Company base their predetermined overhead rates on machine hours. The following information pertains to the companies’ most recent accounting periods.

Required

a. Compute the predetermined overhead rate for each company.

b. Determine the amount of overhead cost that would be applied to work in process for each company and compute the amount of overapplied or underapplied manufacturing overhead cost for each company.

c. Explain how closing the Manufacturing Overhead account would affect the Cost of Goods Sold account for each company.