Question

Morton Company's budgeted variable manufacturing overhead is $3.00 per direct labor-hour and its budgeted fixed manufacturing overhead is $300,000 per year. The company manufactures a single product whose standard direct labor-hours per unit is 2.0 hours. The standard direct labor wage rate is $20 per hour. The standards also allow 3 feet of raw material per unit at a standard cost of $4 per foot. Although normal activity is 40,000 direct labor-hours each year, the company expects to operate at a 30,000-hour level of activity this year. Required: 1. Assume that the company chooses 30,000 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 40,000 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 for 30,000 & 40,000 DLHs. 4. Assume that the company actually produces 17,000 units and works 37,000 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 $ 112,500 301,500 $ 414,000 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 30,000 direct labor-hours (normal activity) as the denominator activity figure in computing predetermined overhead rates, as you have done in (1) above. c. Assume that the company uses 30,000 direct labor-hours (normal activity) as the denominator activity figure in computing predetermined overhead rates, as you have done in requirement (1).

Thank you!

Answer 1

Requirement 1)

1. Assume that the company chooses 30,000 direct labor-hours as the denominator level of activity. Compute the predetermined overhead rate, breaking it down into variable and fixed cost elements:-

	FMOH	VMOH	TMOH
Estimated FMOH costs	300,000	90,000	390,000
Denominator level	30,000	30,000	30,000
Predetermined overhead rate	10	3	13

Requirement 2)

2. Assume that the company chooses 40,000 direct labor-hours as the denominator level of activity. Compute the predetermined overhead rate, breaking it down into variable and fixed cost elements.:-

	FMOH	VMOH	TMOH
Estimated FMOH costs	300,000	120,000	420,000
Denominator level	40,000	40,000	40,000
Predetermined overhead rate	7.5	3	10.50

Requirement 3)

Denominator level = 30,000:-

	Standard quantity	Standard price	Standard cost
Direct materials (yards)	3.0	4.0	12.0
Direct labor (direct labor hours)	2.0	20.0	40.0
Variable overhead per DML hour	2.0	3.0	6.0
Fixed overhead per DML hour	2.0	10.0	20.0
Standard cost per unit			78.0

Denominator level = 40,000:-

	Standard quantity	Standard price	Standard cost
Direct materials (yards)	3.0	4.0	12.0
Direct labor (direct labor hours)	2.0	20.0	40.0
Variable overhead per DML hour	2.0	3.0	6.0
Fixed overhead per DML hour	2.0	7.5	15.0
Standard cost per unit			73.0

Requirement 4)

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

Standard hours allowed per unit produced	2.0
Units produced	17,000
Standard hours allowed for actual production	34,000