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 $5.00 per direct labor-hour and the budgeted fixed manufacturing overhead is $2,295,000 per year. The standard quantity of materials is 4 pounds per unit and the standard cost is $10.50 per pound. The standard direct labor-hours per unit is 1.5 hours and the standard labor rate is $13.50 per hour. The company planned to operate at a denominator activity level of 255,000 direct labor-hours and to produce 170,000 units of product during the most recent year. Actual activity and costs for the year were as follows: Actual number of units produced 204,000 Actual direct labor-hours worked 331,500 Actual variable manufacturing overhead cost incurred $ 961,350 Actual fixed manufacturing overhead cost incurred $2,652,000 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 Reg 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 Fixed rate per DLH per DLH per DLH Reg Reg 2 >

Answer 1

Required 1:-

Predetermined overhead rate	$14.00	per DLH
Variable rate	$5.00	per DLH
Fixed rate	$9.00	per DLH

Working:-

Fixed rate:- budgeted fixed overhead/Estimated direct labour hour

= 2295000/255000 = 9.00

Predetermined overhead rate = 5.00+9.00 = 14.00

Required 2:-

Direct material	4	pounds at	10.50	per pound	$42.00
Direct labour	1.5	DLHs at	13.50	per DLH	$20.25
VaroaVar overhead	1.5	DLHs at	5.00	per DLH	$7.50
Fixed overhead	1.5	DLHs at	9.00	per DLH	$13.50

Total = $83.25

Required 3a:-

Standard direct labour hour required for actual production = 204000units * 1.5 hrs. = 306000 units

Required 3b :-

Manufacturing overhead

Actual cost	3613350	WIP (306000*14.00)	4284000
		Overapplied oberhove	670650

Required 4:-

Variable overhead variance	$696150	F
Variable overhead efficiency variance	$127500	U
Fixed overhead budgeted variance	$357000	U
Fixed overhead volume variance	$459000	F

Working:-

a. Variable overhead variance :- (AR-SR)*AH

= (5.00-2.9)*331500 = 696150

b. Variable overhead efficiency variance = (SH-AH)*SR

= (306000-331500)*5.00 = 127500

c. Fixed overhead budgeted variance =

Budgeted overhead - Actual overhead

2295000-2652000 = 357000

d.Fixed overhead volume variance =

Overhead applied - budgeted overhead

(306000*9.00)- 2295000 = 459000

SR	standard rate
AR	actual rate
SH	standard hour
AH	actual hour