Cretin Enterprises uses a predetermined overhead rate of $21.40 per direct labour-hour. This predetermined rate was based on 16,000 estimated direct labour-hours and $342,400 of esti- mated total manufacturing overhead.

The company incurred actual total manufacturing overhead costs of $345,000 and 16,500 total direct labour-hours during the period. There were no beginning inventories, and all goods produced in the period were shipped out to customers before period-end.

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

2. What is the effect on gross margin for the period?

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