Question - Cretin Enterprises uses a predetermined overhead rate of $21.30 per direct labor-hour. This predetermined rate was based on a cost formula that estimated $172,956 of total manufacturing overhead for an estimated activity level of 8,120 direct labor-hours.
Required:
1. Determine the amount at underapplied or overapplied manufacturing overhead for the period.
2. Assuming that the entire amount of the underapplied or overapplied 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?