Gambaro Precision Tooling applies factory overhead using machine hours and number of component parts as cost-allocation bases. In 20X0, actual factory overhead incurred was $119,000 and applied factory overhead was $126,000. Before disposition of underapplied or overapplied factory overhead, the cost of goods sold was $505,000, gross profit was $55,000, and ending inventories were as follows:

Direct materials ………… $ 20,000

WIP ……………………… 72,000

Finished goods ………….. 99,000

Total inventories ……….. $191,000

1. Was factory overhead overapplied or underapplied? By how much?

2. Assume that Gambaro writes off overapplied or underapplied factory overhead as an adjustment to cost of goods sold. Compute adjusted gross profit.

3. Assume that Gambaro prorates overapplied or underapplied factory overhead based on end- of-the-year unadjusted balances. Compute adjusted gross profit.

4. Assume that actual factory overhead was $128,000 instead of $119,000, and that Gammaro writes off overapplied or underapplied factory overhead as an adjustment to cost of goods sold. Compute adjusted gross profit.