1. Adadam Ltd uses a plant-wide predetermined overhead rate based on machine hours. At the beginning of the 20X3 financial year, the firm estimated that a total of 80,000 hours will be required to manufacture all products. The firm also estimated that total fixed manufacturing overheads for the same period will be GHS100, 000 and unit variable manufacturing overheads will be GHS2 per machine hour.

Adadams actual manufacturing overhead for the 20X3 financial year was GHS260, 000 and actual machine hours were 82,000.

Required:

1. Compute the firms predetermined overhead rate for the year.
2. Determine the amount of under applied or over applied overhead for the period.
3. Assuming the entire amount of the under applied or over applied overhead is closed out to cost of goods sold, what would be the effect of the under applied or over applied overhead on the companys gross margin for the period?