Exercise $3-4($Algo$)$ Underapplied and Overapplied Overhead $[$LO$3-4]$

Osborn Manufacturing uses a predetermined overhead rate of $$18\mathrm{.}50$ per direct labor$-$hour. This predetermined rate was based on a cost formula that estimates $$227,550$ of total manufacturing overhead for an estimated activity level of $12,300$ direct labor$-$hours.

The company actually incurred $$221,000$ of manufacturing overhead and $11,800$ direct labor$-$hours during the period.

Required:

Determine the amount of underapplied or overapplied manufacturing overhead for the period.

Assume that the company's underapplied or overapplied overhead is closed to Cost of Goods Sold. Would the journal entry to dispose of the underapplied or overapplied overhead increase or decrease the company's gross margin? By how much?

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