Fossil Manufacturing uses a predetermined overhead rate of $17.80 per direct labor-hour. This predetermined rate was based on 11,000 estimated direct-labor-hours and $195,800 of estimated total manufacturing overhead. The company incurred actual manufacturing overhead costs of $194,000 and 10,500 direct labor-hours.Required:a. Determine the amount of underapplied or overapplied manufacturing overhead for the period.b. Assuming that the company closed manufacturing overhead to cost of goods sold, make the journal entry to close manufacturing overhead.c. What is the effect of this entry on the company's gross margin?
What will be an ideal response?
a. Overhead over or underapplied
| ? | Actual manufacturing overhead incurred | $194,000 | ? |
| ? | Manufacturing overhead applied to Work in Process: | ? | ? |
| ? | Predetermined overhead rate (a) | $17.80 | per direct labor-hour |
| ? | Actual total amount of the allocation base (b) | 10,500 | direct labor-hours |
| ? | Manufacturing overhead applied (a) × (b) | $186,900 | ? |
| ? | Underapplied (overapplied) manufacturing overhead | $7,100 | Underapplied |
| b. | Cost of Goods Sold | 7,100 | ? |
| ? | Manufacturing Overhead | ? | 7,100 |
c. Underapplied overhead increases the cost of goods sold and decreases gross margin.
Business
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