Question

Problem 10A-8 Applying Overhead; Overhead Variances [LO10-3, LO10-4] Lane Company manufactures a single product and applies overhead cost to that product using standard direct labor-hours. The budgeted variable manufacturing overhead is $3.20 per direct labor-hour and the budgeted fixed manufacturing overhead is $864,000 per year The standard quantity of materials is 4 pounds per unit and the standard cost is $6.00 per pound. The standard direct labor-hours per unit is 1.5 hours and the standard labor rate is $12.60 per hour. The company planned to operate at a denominator activity level of 120,000 direct labor-hours and to produce 80,000 units of product during the most recent year. Actual activity and costs for the year were as follows: Actual number of units produced Actual direct labor-hours worked Actual variable manufacturing overhead cost incurred Actual fixed manufacturing overhead cost incurred 96,000 156,000 312,000 936,000 Required: 1. Compute the predetermined overhead rate for the year. Break the rate down into variable and fixed elements. 2. Prepare a standard cost card for the company's product 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. Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3A Req 3B Req 4 Compute the predetermined overhead rate for the year. Break the rate down into variable and fixed elements. (Round your answers to 2 decimal places.) Predetermined overhead rate per DLH Variable rate per DLH Fixed rate per DLH KReq 1 Req 2

Answer 1

Solution 1 and 2:

5 Solution 1: 6 | Computation of Predetermined overhead rate - Lane Company 7 Particulars Amount Budgeted variable manufacturing overhead ($3.20*120000) $384,000 9 Budgeted fixed manufacturing overhead $864,000 10 11 Total Manufacturing overhead $1,248,000 12 /Budgeted direct labor hours 120000 144000 $10.40 - Predetermined overhead rate 14 15 Less: Variable overhead rate (Per direct labor hour) 1 Fixed manufacturing overhead rate (per direct labor hour) $3.20 $7.20 18 Solution 2: 19 20 21 Direct Material 22 Direct labor 23 Variable manufacturing overhead 24 Fixed manufacturing overhead Standard Cost Card - Lane Company 4 Pounds at 1.5 DLHs at 1.5 DLHs at 1.5 DLHs at $6.00 per pound $12.60 per DLH $3.20 per DLH $7.20 per DLH $24.00 $18.90 $4.80 $10.80 25 $58.50 26 Standard cost per unit 27 28 40 -161 (7) Sheet832 ) Sheet834 Sheet836 Sheet161 (8) III 0 <

Solution 3a:

Standard hours allowed = 96000 units*1.5 hours = 144,000 hours

Solution 3b:

M Q solution 3b: Particulars Actual costs incurred(312000+936000) Manufacturing Overhead Debit | Particulars Credit $1,248,000 $1,497,600 Applied overhead(144000*$10.40) 11 13 To overhead variance (Overapplied overhead) $249,600 14 15 Total $1,497,600 $1,497,600 Total 18 20 21 22 23 25 -161 (7) Sheet832 ) Sheet834 Sheet836 Sheet161 (8) Sheet743 (2) Sheet26 (19) Sheet843

Solution 4:

Variable overhead actual rate = $312000/ 156000 = $2.00 per hour

Variable overhead rate variance = (SP - AP) *Actual Hours = ($3.20 - $2.00) * 156000 = $187,200 Favorable

Variable overhead Efficiency variance = (Standard hours - Actual Hours) *SP = (144000 - 156000)*$3.20 = $38,400 (Unfavorable)

Fixed overhead budget Variance = Budgeted Fixed Overhead - Actual Fixed overhead = $864000 - $936000 = $72,000 (unfavorable)

Fixed Overhead Volume Variance = ($7.20*144000) - $864000 = $172,800 Favorable