Underapplied and Overapplied Overhead

Oz Manufacturing uses a predetermined overhead rate of $20.10 per direct labor-hour. This

predetermined rate was based on a cost formula that estimates $279,390 of total manufacturing

overhead for an estimated activity level of 13,900 direct labor-hours.

The company actually incurred $277,000 of manufacturing overhead and 13,400 direct labor-hours

during the period.

Required:

1. Determine the amount of underapplied or overapplied manufacturing overhead for the period.

Please circle or highlight & fill in the amount Overapplied Underapplied $ ___________

2. Assume that the company's underapplied or overapplied overhead is closed to Cost of Goods

Sold. Would the journal entry to dispose of the underapplied or overapplied overhead increase or

decrease the company's gross margin? By how much?

Please circle or highlight & fill in the amount

Gross margin would increase decrease by $ ___________