1. Determine the amount of under applied or over applied manufacturing overhead for the period. 2. What is the effect on gross margin for the period?

Cretin Enterprises uses a predetermined overhead rate of $7 .50 per direct labour hour. This predetermined rate was based on 16,000 estimated direct labour-hours and $120,000 of estimated total manufacturing overhead. The company incurred actual total manufacturing overhead costs of $114,750 and 15,500 total direct labour-hours during the period. There were no beginning inventories, and all goods produced in the period were shipped out to customers before period end.

Required:

1. Determine the amount of under applied or over applied manufacturing overhead for the period.

2. What is the effect on gross margin for the period?

Expert Solution

1.

Actual direct labour-hours..................................................15,500

× Predetermined overhead rate.........................................$7.50

Manufacturing overhead applied...............................$116,250

Less: Manufacturing overhead incurred.....................114,750

Manufacturing overhead over applied.........................$ 1,500

2.

Because manufacturing overhead is over-applied and there were no beginning or ending inventories, the cost of goods sold would decrease by $1,500 and the gross margin would increase by $1,500.

1. Manufacturing overhead over applied = $ 1,500

2. The gross margin would increase by $1,500.

Renze Joy Candido answered 2 years ago

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