Pad 12:48 PM * 29%D+ Time remaining: 1:30:28 3. Cretin Enterprises uses a predet

Question

Pad 12:48 PM * 29%D+ Time remaining: 1:30:28 3. Cretin Enterprises uses a predetermined overhead rate of $22.20 per direct labor-hour. This predetermined rate was based on a cost formula that estimated $180,486 of total manufacturing overhead for an estimated activity level of 8,130 direct labor-hours. The company incurred actual total manufacturing overhead costs of $179,000 and 8,250 total direct labor-hours during the period. Required 1. Determine the amount of underapplied or overapplied manufacturing overhead for the period S 183,150 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? he gross margin increase

Explanation / Answer

1 Manufacturing overhead applied = Actual direct labor-hours X Predetermined overhead rate 8250*22.2 183150 Manufacturing overhead overapplied = Manufacturing overhead applied – Manufacturing overhead incurred 183150-179000 4150 2 Because manufacturing overhead is overapplied, the cost of goods sold would decrease by $4,150 and the gross margin would increase by $4,150

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