k Osborn Manufacturing uses a predetermined overhead rate of $18.50 per direct l
ID: 2420238 • Letter: K
Question
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Osborn Manufacturing uses a predetermined overhead rate of $18.50 per direct labor-hour. This predetermined rate was based on a cost formula that estimates $227,550 of total manufacturing overhead for an estimated activity level of 12,300 direct labor-hours.
The company incurred actual total manufacturing overhead costs of $221,000 and 11,800 total direct labor-hours during the period.
Determine the amount of underapplied or overapplied manufacturing overhead for the period.
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?
Osborn Manufacturing uses a predetermined overhead rate of $18.50 per direct labor-hour. This predetermined rate was based on a cost formula that estimates $227,550 of total manufacturing overhead for an estimated activity level of 12,300 direct labor-hours.
The company incurred actual total manufacturing overhead costs of $221,000 and 11,800 total direct labor-hours during the period.
Explanation / Answer
1 Total Estimated overhead = 227550 Per Direct Labour Hour = 18.5 For 11800 hours 11800*18.5 218300 Actual Overheads= $ 221000 Overapplied Overheads $ 221000-218300 $2,700 Overheads amounting to $ 2700 has been overapplied 2 If the overheads are overapplied it will decrease the gross margin because the expenses has been increased.
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