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 $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
Actual direct labor-hours worked		253,500
Actual variable manufacturing overhead cost incurred	$	633,750
Actual fixed manufacturing overhead cost incurred	$	1,774,500

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 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

solution:

1.ending inventory specific identification

date	units	$/unit	total cost
02-12-2017	170	35	5950
20-07-2017	50	29	1450
	220		7400

2.ending inventory FIFO

date	units	$/unit	total cost
02-12-2017	170	35	5950
04-09-2017	50	29	1450
	220		7400

ending inventory weighted averge method :

date	units	$/unit	total cost
beggining	170	23	3910
15 march	370	28	10360
20 july	370	29	10730
04 sep	270	33	8910
2 december	170	35	5950
	1350	$29.30	39860

average cost per unit = $3986/1350

= $29.30