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 $5.60 per direct labor-hour and the budgeted fixed manufacturing overhead is $2,880,000 per year. The standard quantity of materials is 4 pounds per unit and the standard cost is $12.00 per pound. The standard direct labor-hours per unit is 1.5 hours and the standard labor rate is $13.80 per hour. The company planned to operate at a denominator activity level of 300,000 direct labor-hours and to produce 200,000 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 240,000 390,000 $1,248,000 $3,120,000 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.

Answer 1

1)
predetermined overhead rate					15.2
variable rate					5.6
fixed rate (2,880,000/300000)					9.6
2)
Direct materials		4	pounds at	12	per pound	48
Direct labor		1.5	DLH'S	13.8	per DLH	20.7
Variable overhead		1.5	DLH'S at	5.6	per DLH	8.4
Fixed overhead		1.5	DLH'Sat	9.6	per DLH	14.4
Standard cost per unit						91.5
3)
Standard direct labor hours allowed for the years production=
Actual units produced *Direct labor hr per unit
240000*1.5
360000
3b)
Manufacturing overhead T-Account
Actual costs		4368000	Applied costs (360000*15.2)			5472000
			overhead overapplied			1104000
4)
Variable overhead rate variance = (AR- Std rate)*AH
=(1,248,000-390000*5.60)
			936000	F
Variable overhead efficiency variance = (AH-SH)*SR
=				(390,000-360000)*5.6
				168000	U
Fixed overhead budget variance = actual overhead - budgeted oveerhead
3,120,000-2,880,000
			240000	U
fixed overhead volume variance= actual output*fixed overhead rate per unit-budgeted overhead
240,000*14.4-2,880,000
			576,000	F