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 $2.80 per direct labor-hour and the budgeted fixed manufacturing overhead is $612,000 per year. The standard quantity of materials is 4 pounds per unit and the standard cost is $5.00 per pound. The standard direct labor-hours per unit is 1.5 hours and the standard labor rate is $12.40 per hour. The company planned to operate at a denominator activity level of 90,000 direct labor-hours and to produce 60,000 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 72,000 117,000 $ 210,600 $ 643,500 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 the underapplied or overapplied overhead from (3) above by computing the variable overhead rate and efficiency variances and the fixed overhead budget and volume variances.

Answer 1

3b.

Manufacturing Overhead
Actual costs	854100	1036800	Applied costs
	0	0
	0	0
		182700	Overapplied overhead

Actual costs = $210600 + $643500 = $854100