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Applied Overhead

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Osborn Manufacturing uses a predetermined overhead rate of $18.20 per direct labor-hour. This predetermined rate was based on 12,000 estimated direct labor-hours and $218,400 of estimated total manufacturing overhead.
The company incurred actual total manufacturing overhead costs of $215,000 and 11,500 total direct labor-hours during the period.

Required:

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?
Round your answers to two decimal places. Include .00 if there are no cents.
1. Actual direct labor-hours ____________
x Predetermined overhead rate $ ____________

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= Manufacturing overhead applied $ ____________
Less: Manufacturing overhead incurred ____________

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Manufacturing overhead __________ $( ____________)

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2. Since manufacturing overhead is __________ , the cost of goods sold would be __________ by $ ____________ and the gross margin would __________ by
$ ____________.

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Solution Summary

The solution explains how to calculate the under or over applied overhead for Osborn Manufacturing.

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1. Actual direct labor-hours 11,500
x Predetermined overhead rate $ 18.20

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= Manufacturing overhead applied $ 209,300
Less: ...

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