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 manufacturing 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		36,000
Actual direct labor-hours worked		58,500
Actual variable manufacturing overhead cost incurred	$	87,750
Actual fixed manufacturing overhead cost incurred	$	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 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 3A Req 3B Req 4 Req 2 Complete the following Manufacturing Overhead T-account for the year. Manufacturing Overhead Actual costs 0 Req 3A Req 4

Answer 1

Part-1

Predetermined Overhead rate = $2.20 + $6.20 = $8.40 per DLH

Variable overhead rate = $2.20 per DLH

Fixed overhead rate = $279000/ 45000= $6.20 per DLH

2) Standard Cost Card :
Direct Mateial	4	Pounds at	$3.50	Per pound	$14.00
Direct Labour	1.5	DLHs at	$12.10	per DLH	$18.15
Variable Overhead	1.5	DLHs at	$2.20	per DLH	$3.30
Fixed Overhead	1.5	DLHs at	$6.20	per DLH	$9.30
Standard cost per unit					$44.75

3a) Standard DLH allowed for the year = 36000 units * 1.5 DLH per unit = 54000 DLH

3b) Manufacturing Overhead :
Variable cost	$87,750.00	WIP (54000*8.40)	$453,600.00
Fixed cost	$321,750.00
Over-applied (BF)	$44,100.00
Total	$453,600.00	Total	$453,600.00

Variable OH Rate Variance= ( SR-AR)X AH

($2.20-$1.50)X58500=$40950Favourable

Actual Rate= 87750/58500=$1.50

Variable OH Efficiency Variance= ( SHX AQ-Ahour)X SR

(1.5 Hour X 36000-58500)X$2.20= $9900 Unfavourable

-1

Fixed verhead Budget Variance= Budgeted Oh- Actual Overhead

$279000-$321750=$42750 Unfavourable

Fixed Overhead Volume Variance= Applied Overhead - Budgeted Overhead

(1.5 HourX36000X$6.20)-$321750=$13050 Favourable