Exercise 3-7 Underapplied and Overapplied Overhead [LO3-7]
Osborn Manufacturing uses a predetermined overhead rate of $19.10
per direct labor-hour. This predetermined rate was based on a cost
formula that estimates $246,390 of total manufacturing overhead for
an estimated activity level of 12,900 direct labor-hours. The
company incurred actual total manufacturing overhead costs of
$245,000 and 12,400 total direct labor-hours during the period.
Required:

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

2. Assuming that the entire amount of the underapplied or
overapplied overhead is closed out to cost of goods sold, what
would be the effect of the underapplied or overapplied overhead on
the company’s gross margin for the period?