Question

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Lane Company manufactures a single product and applies overhead cost to that product using standard direct labor-hours. The budgeted variable manufacturing overhead is $4.20 per direct labor-hour and the budgeted fixed manufacturing overhead is $1,599,000 per year. The standard quantity of materials is 4 pounds per unit and the standard cost is $8.50 per pound. The standard direct labor-hours per unit is 1.5 hours and the standard labor rate is $13.10 per hour. The company planned to operate at a denominator activity level of 195,000 direct labor-hours and to produce 130,000 units of product during the most recent year. Actual activity and costs for the year were as follows: Actual number of units produced 156,000 253,500 633,750 $1,774,500 Actual direct labor-hours worked Actual variable manufacturing overhead cost incurred Actual fixed manufacturing overhead cost incurred 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 per DLH Variable rate per DLH Fixed rate per DLH Reg 1 Reg 2

Answer 1

Solution 1:

Computation of Predetermined overhead rate - Lane Company
Particulars	Amount
Budgeted variable manufacturing overhead ($4.20*195000)	$819,000.00
Budgeted fixed manufacturing overhead	$1,599,000.00
Total Manufacturing overhead	$2,418,000.00
Budgeted direct labor hours	195000
Predetermined overhead rate	$12.40
Variable overhead rate (Per direct labor hour)	$4.20
Fixed manufacturing overhead rate (per direct labor hour)	$8.20

Solution 2a:

Standard Cost Card - Lane Company
Particulars	Amount
Direct Material (4*$8.50)	$34.00
Direct labor (1.5*$13.10)	$19.65
Variable manufacturing overhead (1.5*$4.20)	$6.30
Fixed manufacturing overhead (1.5*$8.20)	$12.30
Standard cost per unit	$72.25

Solution 3a:

Standard hours for actual production = 156000*1.50 = 234000 hours

Solution 3b:

Manufacturing Overhead
Particulars	Debit	Particulars	Credit
To Cash (Variable manufacturing overhead)	$633,750.00	By WIP (Applied overhead) (156000*1.50*$12.40)	$2,901,600.00
To Cash (Fixed manufacturing overhead)	$1,774,500.00
To overhead variance (Overapplied overhead)	$493,350.00
Total	$2,901,600.00	Total	$2,901,600.00

solution 4:

Variable overhead actual rate = $633750 / 253500 = $2.50

Variable overhead rate variance = (SP - AP) *Actual Hours = ($4.20 - $2.50) * 253500 = $430950 Favorable

Variable overhead Efficiency variance = (Standard hours - Actual Hours) *SP = (156000*1.5 - 253500)*$4.20 = - $81,900 (Unfavorable)

Fixed overhead budget Variance = Budgeted Fixed Overhead - Actual Fixed overhead = $1,599000 - $1,774,500 = -$175,500 (unfavorable)

Fixed Overhead Volume Variance = ($8.20*156000*1.50) - $1,599,000 =$1,918,800 - 1,599,000 = $319,800 Favorable