Lane Company manufactures a single product that requires a great deal of hand la
ID: 2595632 • 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 $2.40 per direct labor-hour and the budgeted fixed manufacturing overhead is $384,000 per year.
The standard quantity of materials is 4 pounds per unit and the standard cost is $4.00 per pound. The standard direct labor-hours per unit is 1.5 hours and the standard labor rate is $12.20 per hour.
The company planned to operate at a denominator activity level of 60,000 direct labor-hours and to produce 40,000 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 48,000 Actual direct labor-hours worked 78,000 Actual variable manufacturing overhead cost incurred $ 124,800 Actual fixed manufacturing overhead cost incurred $ 429,000Explanation / Answer
Standard Units 40000 Variable Manufacturing OH 2.40 Per Direct Labor Hour Fixed Manufacturing OH (B) 384000 PA Planned Direct L Hours 60000 Recovery Rate Per DLH 6.40 1 Variable Manufacturing OH 2.40 Per Direct Labor Hour Fixed Manufacturing OH 6.40 Per Direct Labor Hour Total Manufacturing OH 8.80 Per Direct Labor Hour 172800 2 Standard Cost Sheet Factor Rate Amt Material 4.00 4.00 16.00 Direct Labor 1.50 12.20 18.30 Variable Manufacturing OH 1.50 2.40 3.60 Fixed Manufacturing OH 1.50 6.40 9.60 Total Standard Cost 47.50 3A Actual number of units produced 48000 Actual number of units produced 48000 Standard Direct Labor Hours PU 1.50 Actual direct labor-hours worked 78000 Total Standard Hours Required 72000 Actual variable manufacturing overhead cost incurred 124800 Actual fixed manufacturing overhead cost incurred 429000 Per Hour rate of variable OH 1.60 (124800/78000) 3B Actual direct labor-hours worked 78000 Manufacturing Overhead Account Recovery Rate Per DLH 8.80 To Actual OH-Fixed 429000 By Applied OH 686400 Total Applied OH 686400 To Actual OH-Variable 124800 To Balance C/d 132600 (Overapplied OH) Total 686400 Total 686400 Variable OH Variance: VOH Price Variance: (SP-AP)Actual Hours 62400 F VOH Eff Variance: (SH-AH)SP -14400 A Total Variable OH Variance 48000 Total Standard Variable OH Cost 172800 Total Actual Variable OH Cost 124800 Variance 48000 Fixed OH Variance: Fixed OH Budget Variance Actual Fixed OH 429000 Budgeted Fixed OH 384000 Variance -45000 Adverse Fixed OH Volume Variance Fixed Overhead Cost 384000 Fixed OH Applied 499200 Variance -115200
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