Osborn Manufacturing uses a predetermined overhead rate of $18.70 per direct labor-hour. This predetermined rate was based on a cost formula that estimates $233,750 of total manufacturing overhead for an estimated activity level of 12,500 direct labor-hours. The company incurred actual total manufacturing overhead costs of $229,000 and 12,000 total direct labor-hours during the period. Required:
1. Determine the amount of under applied or over applied manufacturing overhead for the period.
2. Assuming that the entire amount of the under applied or over applied overhead is closed out to cost of goods sold, what would be the effect of the under applied or over applied overhead on the company's gross margin for the period?