Cretin Enterprises uses a predetermined overhead rate of $21.40 per direct labor-hour. This predetermined rate was based on a cost formula that estimated $171,200 of total manufacturing overhead for an estimated activity level of 8,000 direct labor-hours.
The company incurred actual total manufacturing overhead costs of $172,500 and 8,250 total direct labor-hours during the period.

1. Determine the amount of underapplied/overapplied manufacturing overhead for the period
2. What would be the effect of the underapplied/overapplied overhead on the company's gross margin for the period?

Question

Cretin Enterprises uses a predetermined overhead rate of $21.40 per direct labor-hour. This predetermined rate was based on a cost formula that estimated $171,200 of total manufacturing overhead for an estimated activity level of 8,000 direct labor-hours.
The company incurred actual total manufacturing overhead costs of $172,500 and 8,250 total direct labor-hours during the period.

1. Determine the amount of underapplied/overapplied manufacturing overhead for the period
2. What would be the effect of the underapplied/overapplied overhead on the company's gross margin for the period?