Lane Company manufactures a single product that requires a great deal of hand la
ID: 2528005 • Letter: L
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 $4.40 per direct labor-hour and the budgeted fixed manufacturing overhead is $1,764,000 per year.
The standard quantity of materials is 4 pounds per unit and the standard cost is $9.00 per pound. The standard direct labor-hours per unit is 1.5 hours and the standard labor rate is $13.20 per hour.
The company planned to operate at a denominator activity level of 210,000 direct labor-hours and to produce 140,000 units of product during the most recent year. Actual activity and costs for the year were as follows:
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.
Actual number of units produced 168,000 Actual direct labor-hours worked 273,000 Actual variable manufacturing overhead cost incurred $ 709,800 Actual fixed manufacturing overhead cost incurred $ 1,911,000Explanation / Answer
1 Predetermined overhead rate Fixed overhead rate 8.40 (1764000/210000) Variable overhead rate 4.4 Predetermined overhead rate 12.80 2 Per unit Direct material 36 (4*9) Direct labor 19.8 13.20*1.5 Predetermined overhead rate 12.80 Standard cost per unit 68.6 3a Standard direct labor hours allowed 252000 (168000*1.5) 3b Manufacturing overheads Actual overheads 2620800 2872800 Overhead applied 252000 Overapplied 4 Variable overheads 1108800 (4.4*252000) Fixed manufacturing overheads 1764000 Applied overheads 2872800 Actual overheads 2620800 (709800+1911000) Over applied 252000
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