Question

Lane Company manufactures a single product and applies overhead cost to that product using standard direct labor-hours. The budgeted variable manufacturing overhead is $5.40 per direct labor-hour and the budgeted fixed manufacturing overhead is $2,679,000 per year. The standard quantity of materials is 4 pounds per unit and the standard cost is $11.50 per pound. The standard direct labor-hours per unit is 1.5 hours and the standard labor rate is $13.70 per hour. The company planned to operate at a denominator activity level of 285,000 direct labor-hours and to produce 190.000 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 228,000 370, see $1,148,550 $2,964, a 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 years production 3b. Complete the following Manufacturing Overhead account for the year 4. Determine the reason for any underapplied or overalle overhead for the year by computing the variable overhead rate and efficiency variances and the fixed overhead budget and volume verances.

Answer 1

Answer-1-Computation of predetermined overhead rate:-

Predetermined Overhead Rate	$14.80 ($5.40+$9.40)	per DLH
Variable Rate	$5.40	per DLH
Fixed Rate	$9.40 ($2,679,000/285,000)	per DLH

2-Preparing a standard cost card for the company's product:-

Direct Materials	4	pounds at	$11.50	per pound	$46
Direct Labor	1.50	DLHs at	$13.70	per DLH	$20.55
Variable Overhead	1.50	DLHs at	$5.40	per DLH	$8.10
Fixed Overhead	1.50	DLHs at	$9.40	per DLH	$14.10
Standard Cost per unit					$88.75

3a )standard hours for actual production = Standard direct labor hours *actual unit produced

                                                           = 1.50 *228000

                                                            = 342,000 DLH

3b)

Actual overhead	4,112,550 ($1,148,550+2,964,000)	applied overhead	5,061,600
		overhead overapplied	$949,050

**Applied overhead =

Variable overhead = 342000 DLH * 5.40 = $ 1,846,800

Fixed overhead = 342000 DLH * 9.40 = $ 3,214,800

Total manufacturing overhead applied =$5,061,600

4.

(a) Variable Overhead rate variance = (Actual Rate*Actual Hour -Standard Rate*Actual Hour )

Variable Overhead rate variance = ($1,148,550 - ($5.40*370,500)

= $1,148,550 - $2,000,700 = $852,150 F

(b) Variable Overhead efficiency variance =(Actual Hour-Standard Hour )Standard Rate

Variable Overhead efficiency variance = (370,500 - 342,000) * $5.40

= $153,900 U

Standard Hour = 228,000*1.5 = 342,000

(c) Fixed overhead budget Variance = Actual Fixed Overhead - Budgeted Fixed Overhead

Fixed overhead budget Variance = 2,964,000 - 2,679,000 = $285,000 U

(d) Fixed overhead volume variances = ( Budgeted Fixed Overhead - Standard Hour Allowed * Standard Rate)

Fixed overhead volume variances = 2,679,000 - (342,000*9.40)

= 2,679,000 - 3,214,800 = $535,800 F