Spectrum Manufacturing had the following information in its records at the end of the year: What was the balance in Manufacturing Overhead,and when closed what will the effect be on gross margin?
A)$3,000 underapplied,and increase
B)$3,000 overapplied,and increase
C)$3,000 underapplied,and decrease
D)$3,000 overapplied,and decrease

Question

Spectrum Manufacturing had the following information in its records at the end of the year:   What was the balance in Manufacturing Overhead,and when closed what will the effect be on gross margin?
A)$3,000 underapplied,and increase 
B)$3,000 overapplied,and increase 
C)$3,000 underapplied,and decrease 
D)$3,000 overapplied,and decrease

Quizplus · Accepted Answer

Overhead applied = Predetermined overhead rate × Amount of the allocation base incurred
Overhead applied = 1.25 × $84,000 = $105,000
 11eaa3fe_33ae_6858_908b_cbc99cd16319_TB2461_00 Underapplied (overapplied)manufacturing overhead = Actual manufacturing overhead - Manufacturing overhead applied = $102,000 - $105,000 = -$3,000
The overapplied overhead will decrease Cost of Goods Sold and therefore increase the gross margin.

Spectrum Manufacturing Had the Following Information in Its Records at the End