Cretin Enterprises uses a predetermined overhead rate of $8 per direct labour-hour. This predetermined rate was based on 40,000 estimated direct labour-hours and $320,000 of estimated total manufacturing overhead. The company incurred actual total manufacturing overhead costs of $298,000 and 38,500 total direct labour-hours during the period. There were no beginning inventories, and all goods produced in the period were shipped out to customers before period-end.

Required:
1. Determine the amount of underapplied or overapplied manufacturing overhead for the period.
2. What is the effect on gross margin for the period?