Question

Lane Company manufactures a single product that requires a great deal of hand labor. Overhead cost is applied on the basis of standard direct labor-hours. The budgeted variable manufacturing overhead is $5.80 per direct labor-hour and the budgeted fixed manufacturing overhead is $3,087,000 per year.

The standard quantity of materials is 4 pounds per unit and the standard cost is $12.50 per pound. The standard direct labor-hours per unit is 1.5 hours and the standard labor rate is $13.90 per hour.

The company planned to operate at a denominator activity level of 315,000 direct labor-hours and to produce 210,000 units of product during the most recent year. Actual activity and costs for the year were as follows:

Actual number of units produced		252,000
Actual direct labor-hours worked		409,500
Actual variable manufacturing overhead cost incurred	$	1,351,350
Actual fixed manufacturing overhead cost incurred	$	3,276,000

Required:

1. Compute the predetermined overhead rate for the year. Break the rate down into variable and fixed elements.

Predetermined overhead rate per DLH Variable rate per DLH Fixed rate per DLH

2. Prepare a standard cost card for the company’s product.

	Direct materials pounds at per pound Direct labor DLHs at per DLH Variable overhead DLHs at per DLH Fixed overhead DLHs at per DLH Standard cost per unit

3a. Compute the standard direct labor-hours allowed for the year’s production.

3b. Complete the following Manufacturing Overhead T-account for the year.

4. Determine the reason for any underapplied or overapplied overhead for the year by computing the variable overhead rate and efficiency variances and the fixed overhead budget and volume variances.

Variable overhead rate variance
Variable overhead efficiency variance
Fixed overhead budget variance
Fixed overhead volume variance

Answer 1

Page 1 Solution: - *) According to information: - vadiable i predetermined overhead date = 15.6 ii, variable 5.8 ji, fixed = (3087000/315000) = 9.8 2) standard cost card for the company's: - Direct material 4 Pounds at 12.5 Per pound 50 Direct labor 1 1.5 | DLHS at 13.9 Per DLH 20-85 Variable overhead 1.5 DLHS at / 5.8 per DLH 8.7 I fixed overhead | 15 | DLHS at 9.8 Per DLH | 147 standard cost per una |94.25 standaod direct labour hours allowed - 378000 (252000 x1.5) b) Manufacturing overhead G accounts) Actual cos (1351 350 +3276000) 4627350 - 5896800 Applied cost (378000 X 15.6) 1269450 overapplied overhet

4) Page 2 » Variable overhead sate variance - $1,023,750 F Actual vasiable overhead - (Actual hours xs8) 1391330 – (409500x 5.8) = $1,023,750 . => Variable overhead efficiency Vadiance - 182700 U SRX(AH-SH allowed) 5.8% (409500 - (252000 x1.5)): -> fixed overhead volume variance Absorbed - Budgeted (9.8X1.5X252000) – 3087000 - 617400 F > fixed manufacturing overhead rate per hour = 3087000/315000 = 9.80/hour : Total Overhead variance - 1023750 - 182700 - 189000 - 617400 = $1,269,450 overapplied

wy page-3 - one of the reason may be the labor - employed was paid at a less wage 1. rate than was planned. . . - The company got the labor at very less rate . - But overall it was a correct decision by company as the overall manufacturing overhead cost less than was expected.