Question
Osborn Manufacturing uses a predetermined overhead rate of $18.40 per direct labor-hour. This predetermined rate was based on a cost formula that estimates $224,480 of
Osborn Manufacturing uses a predetermined overhead rate of $18.40 per direct labor-hour. This predetermined rate was based on a cost formula that estimates $224,480 of total manufacturing overhead for an estimated activity level of 12,200 direct labor-hours. The company actually incurred $219,000 of manufacturing overhead and 11,700 direct labor-hours during the period. Required: Calculate the underapplied or overapplied manufacturing overhead. Assume the company's underapplied or overapplied overhead is closed to Cost of Goods Sold. Would the closing journal entry increase or decrease gross margin? By how much?
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