Osborn Manufacturing uses a predetermined overhead rate of 18.20 per direct labor-hour. This predetermined rate was based on a cost formula that estimates 218,400 of total manufacturing overhead for an estimated activity level of 12000 direct labor-hours. The company incurred actual total manufacturing overhead costs of $215000 and 11,500 total direct labor-hours during the period.
1. Determine the amount of underapplied or overapplied manufacturing overhead fort he period.
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.