Question

Morton Company's budgeted variable manufacturing overhead is $3.00 per direct labor-hour and it's budgeted fixed manufacturing overhead is $375,000 per year

Problem 10A-12 Selection of a Denominator; Overhead Analysis; Standard Cost Card [L010-3, L010-4) Morton Company's budgeted variable manufacturing overhead is $3.00 per direct labor-hour and its budgeted fixed manufacturing overhead is $375,000 per year The company manufactures a single product whose standard direct labor-hours per unit is 3.0 hours. The standard direct labor wage rate is $20 per hour. The standards also allow 4 feet of raw material per unit at a standard cost of $6 per foot. Although normal activity is 60,000 direct labor-hours each year, the company expects to operate at a 50,000-hour level of activity this year Required: 1. Assume that the company chooses 50,000 direct labor-hours as the denominator level of activity. Compute the predetermined overhead rate, breaking it down into variable and fixed cost elements 2. Assume that the company chooses 60,000 direct labor-hours as the denominator level of activity. Compute the predetermined overhead rate, breaking it down into variable and fixed cost elements 3. Complete two standard cost cards as outlined below. 4. Assume that the company actually produces 19,000 units and works 59,000 direct labor-hours during the year. Actual manufacturing overhead costs for the year are Variable manufacturing overhead cost Fixed manufacturing overhead cost Total manufacturing overhead cost ş 186,200 380,200 566,400 a. Compute the standard direct labor-hours allowed for this year's production. b. Complete the Manufacturing Overhead T-account below. Assume that the company uses 50,000 direct labor-hours (normal activity) as the denominator activity figure in computing predetermined overhead rates, as you have done in (1) above c. Determine the cause of the underapplied or overapplied overhead for the year by computing the variable overhead rate and efficiency variances and the fixed overhead budget and volume variances Req 1 Req 2 Req 3 Req 4A Req 4B Req 4C Assume that the company chooses 50,000 direct labor-hours as the denominator level of activity. Compute the predetermined overhead rate, breaking it down into variable and fixed cost elements. (Round your answers to 2 decimal places.) Predetermined overhead rate Variable element Fixed element per DLH per DLH per DLH Req Req 2 Req 1 Req 2 Req 3 Req 4A Req 4B Req 4C Complete two standard cost cards as outlined below. (Round your answers to 2 decimal places.) Denominator Activity 50,000 DLHs 60,000 DLHs Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total standard cost per unit Req2 Req 4A Complete this question by entering your answers in the tabs below. Req 2 Req 3 Req 1 Compute the standard direct labor-hours allowed for this year's production Standard hours allowed for this years production Req 4A Req 4B Req 4C KReq 3 Req 4B Req 1 Req 2 Req 3 Req 4A Req 4B Req 4C Complete the Manufacturing Overhead T-account below. Assume that the company uses 50,000 direct labor activity) as the denominator activity figure in computing predetermined overhead rates, as you have done i Manufacturing Overhead 566,400 K Req 4A Req 4C> Req 1 Req 2 Req 3 Req 4A Req 4B Req 4C Determine the cause of the underapplied or overapplied overhead for the year by computing the variable overhead rate and efficiency variances and the fixed overhead budget and volume variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.) Variable overhead rate variance Variable overhead efficiency variance Fixed overhead budget variance Fixed overhead volume variance overhead K Req 4B Req 4C

Answer 1

Solution 1:

Morton company
(Assuming 50000 labor hours)
Budgeted variable manufacturing overhead ($3.00*50000)	$1,50,000.00
Budgeted fixed manufacturing overhead	$3,75,000.00
Total Manufacturing overhead	$5,25,000.00
/Budgeted direct labor hours	50000
Predetermined overhead rate	$10.50
Less: Variable overhead rate (Per direct labor hour)	$3.00
Fixed manufacturing overhead rate (per direct labor hour)	$7.50

Solution 2:

Morton company
(Assuming 60000 labor hours)
Budgeted variable manufacturing overhead ($3.00*60000)	$1,80,000.00
Budgeted fixed manufacturing overhead	$3,75,000.00
Total Manufacturing overhead	$5,55,000.00
/Budgeted direct labor hours	60000
Predetermined overhead rate	$9.25
Less: Variable overhead rate (Per direct labor hour)	$3.00
Fixed manufacturing overhead rate (per direct labor hour)	$6.25

Solution 3:

Standard Cost Card
	Denominator Activity
	50000 DLHs	60000 DLHs
Direct Material (4*$6)	$24.00	$24.00
Direct labor (3*$20)	$60.00	$60.00
Variable manufacturing overhead (3*$3)	$9.00	$9.00
Fixed manufacturing overhead (3* Rate)	$22.50	$18.75
Total Standard cost per unit	$115.50	$111.75

Solution 4-a:

Standard hours = 19000 *3 = 57000 hours

Solution 4-b:

Manufacturing Overhead
Particulars	Debit	Particulars	Credit
To Cash (Variable manufacturing overhead)	$1,86,200.00	By WIP (Applied overhead) (57000*$10.50)	$5,98,500.00
To Cash (Fixed manufacturing overhead)	$3,80,200.00
To overhead variance (Overapplied overhead)	$32,100.00
Total	$5,98,500.00	Total	$5,98,500.00

Solution 4-c:

Variable overhead actual rate = $186200/ 59000 = $3.155932 per hour

Variable overhead rate variance = (SP - AP) *Actual Hours = ($3.00 - $3.155932) *59000 = - $9200 Unfavorable

Variable overhead Efficiency variance = (Standard hours - Actual Hours) *SP = (57000 - 59000)*$3.00 = - $6000 (Unfavorable)

Fixed overhead budget Variance = Budgeted Fixed Overhead - Actual Fixed overhead = $375000 - $380200 = -$5200 (unfavorable)

Fixed Overhead Volume Variance = ($7.50*57000) - $375000 = $52,500 Favorable

Overapplied Variance = $32,100