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 $2.20 per direct labor-hour and the budgeted fixed Emanufacturing overhead is $279,000 per year. The standard quantity of materials is 4 pounds per unit and the standard cost is $3.50 per pound. The standard direct labor-hours per unit is 1.5 hours and the standard labor rate is $12.10 per hour. The company planned to operate at a denominator activity level of 45,000 direct labor-hours and to produce 30,000 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 36,000 58,500 $ 87,750 $ 321,750 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 the underapplied or overapplied overhead from (3) above 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.

Answer 1

Solution 1 and 2:

G H 5 Solution 1: | Computation of Predetermined overhead rate - Lane Company Particulars Amount Budgeted variable manufacturing overhead ($2.20*45000) $99,000 Budgeted fixed manufacturing overhead $279,000 10 11 Total Manufacturing overhead 12 /Budgeted direct labor hours $378,000 45000 54000 Predetermined overhead rate $8.40 $2.20 16 Less: Variable overhead rate (Per direct labor hour) Fixed manufacturing overhead rate (per direct labor hour) $6.20 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 $3.50 per pound 1.5 DLHs at $12.10 per DLH 1.5 DLHs at $2.20 per DLH 1.5 DLHs at $6.20 per DLH $14.00 $18.15 $3.30 $9.30 Standard cost per unit $44.75 27 28 39 40 41 -161 (7) Sheet832 ) Sheet834 Sheet836 Sheet161 (8)

Solution 3a:

Standard hours allowed = 36000*1.5 = 54,000 hours

Solution 3b:

R solution 3b: Particulars Actual costs incurred(87750+321750) Manufacturing Overhead Debit Particulars Credit $409,500 $453,600 Applied overhead(54000*$8.40) To overhead variance (Overapplied overhead) $44,100 Total $453,600 $453,600 Total 18 20 21 22 23 24 25 -161 (7) Sheet832 ) Sheet834 Sheet836 Sheet161 (8) Sheet743 (2) Sheet26 (19) Sheet843 III 0

Solution 4:

Variable overhead actual rate = $87750/ 58500 = $1.50 per hour

Variable overhead rate variance = (SP - AP) *Actual Hours = ($2.20 - $1.50) * 58500 = $40,950 Favorable

Variable overhead Efficiency variance = (Standard hours - Actual Hours) *SP = (54000 - 58500)*$2.20 = $9,900 (Unfavorable)

Fixed overhead budget Variance = Budgeted Fixed Overhead - Actual Fixed overhead = $279000 - $321750 = $42,750 (unfavorable)

Fixed Overhead Volume Variance = ($6.20*54000) - $279000 = 55,800 Favorable