Lane Company manufactures a single product and applies overhead cost to that pro

Question

Lane Company manufactures a single product and applies overhead cost to that product using standard direct labor hours. The budgeted variable manufacturing overhead is $5.40 per direct labor-hour and the budgeted fixed manufacturing overhead is $2,679,000 per year. The standard quantity of materials is 4 pounds per unit and the standard cost is $11.50 per pound. The standard direct labor-hours per unit is 1.5 hours and the standard labor rate is $13.70 per hour. The company planned to operate at a denominator activity level of 285,000 direct labor-hours and to produce 190,000 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 228,000 370,500 $1,148,550 $2,964,000 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

Explanation / Answer

Req 1. Pre-determined Overhead rate: Variable manufacturing OH pere DLH 5.40 Fixed manufacturing Overhead per DLH 9.40 (Estimated Fixed OH / Direct labour hours i.e. $2679000/285000) Pre-determined OH rate per DLH 14.80 Req 2: Standard cost per unit: Material 4 pounds at 11.50 per pound 46.00 Labour 1.5 DLH at 13.70 per hour 20.55 Variable OH 1.5 DLH at 5.40 per hour 8.10 Fixed OH 1.5 DLH at 9.40 per hour 14.10 Standard cost per unit 88.75 Req 3.a: Units produced: 228,000 units Std labour hours allowed per unit : $ 1.5 hours per unit Std labour hours allowed for actual output (228000*1.5)= 342,000 hours Req 3-b Mannufacturing Overheads Account Cash Account 1148550 Work in process Inventory 5483400 Cash Account 2964000 (370500 DLH @ 14.80) Balance 1370850 Req 4 Actual variable OH: $ 1148550 Actual rate per hours (1148550/370500): 3.1 Vvariable OH rate variance = Actual hours (Std rate -Actual rate) 370500 (5.40 -3.10) = 852150 F Variable efficiency = Std rate (Sstd hours- Actual hours) 5.40 (342000-370500)= $ 153900 U Actual Fixed Overheads: $ 2964000 Budgeted Fixed OH; $2679000 Std fixed OH allowed (342000*9.40): $ 3214800 Fixed OH budget variance: Budgeted Fixed OH-Actual OH 2679000-2964000 = $285,000 U Fixed Oh Volume variance = Std OH allowed-Budgeted OH 3214800-2679000= 535800 F Variable rate 852150 F Variable Efficiency -153900 U Fixed Budgeted -285000 U Fixed Volume 535800 F

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