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 $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 228,000 Actual direct labor-hours worked 370,500 Actual variable manufacturing overhead cost incurred $ 1,148,550 Actual fixed manufacturing overhead cost incurred $ 2,964,000 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 2 Req 3A Req 3B Req 4 Compute the predetermined overhead rate for the year. Break the rate down into variable and fixed elements. (Round your answers to 2 decimal places.) Predetermined overhead rate Variable rate per DLH per DLH per DLH Fixed rate Reg 1 Req 2 >

Answer 1

Solution 1:

Computation of Predetermined overhead rate - Lane Company
Particulars	Amount
Budgeted variable manufacturing overhead ($5.40*285000)	$15,39,000
Budgeted fixed manufacturing overhead	$26,79,000
Total Manufacturing overhead	$42,18,000
/Budgeted direct labor hours	285000
Predetermined overhead rate	$14.80
Less: Variable overhead rate (Per direct labor hour)	$5.40
Fixed manufacturing overhead rate (per direct labor hour)	$9.40

Solution 2:

Standard Cost Card - Lane Company
Direct Material	4	Pounds at	$11.50	per pound	$46.00
Direct labor	1.5	DLHs at	$13.70	per DLH	$20.55
Variable manufacturing overhead	1.5	DLHs at	$5.40	per DLH	$8.10
Fixed manufacturing overhead	1.5	DLHs at	$9.40	per DLH	$14.10
Standard cost per unit					$88.75

Solution 3a:

Standard hours allowed = 228000*1.5 = 342,000 hours

Solution 3b:

Manufacturing Overhead
Particulars	Debit	Credit	Particulars
Actual costs (1148550+ 2964000)	$41,12,550	$50,61,600	Applied costs (342000*$14.80)
Overapplied overhead	$9,49,050
Total	$50,61,600	$50,61,600	Total

Solution 4:

Variable overhead actual rate = $1148550/ 370500 = $3.10 per hour

Variable overhead rate variance = (SP - AP) *Actual Hours = ($5.40 - $3.10) * 370500 = $852,150 Favorable

Variable overhead Efficiency variance = (Standard hours - Actual Hours) *SP = (342000 - 370500)*$5.40 = $153,900 (Unfavorable)

Fixed overhead budget Variance = Budgeted Fixed Overhead - Actual Fixed overhead = $2679000 - $2964000 = $285,000 (unfavorable)

Fixed Overhead Volume Variance = ($9.40*342000) - $2679000 = $535,800 Favorable