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 $4.60 per direct labor-hour and the budgeted fixed manufacturing overhead is $1,935,000 per year. The standard quantity of materials is 4 pounds per unit and the standard cost is $9.50 per pound. The standard direct labor-hours per unit is 1.5 hours and the standard labor rate is $13.30 per hour. The company planned to operate at a denominator activity level of 225,000 direct labor-hours and to produce 150,000 units of product during the most recent year. Actual activity and costs for the year were as follows: Actual number of units produced 180,000 Actual direct labor-hours worked 292,500 Actual variable manufacturing overhead cost incurred $ 789,750 Actual fixed manufacturing overhead cost incurred $ 2,047,500 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 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.

Answer 1

The answers are given below.Please do rate this.Thanks.

1	Total overhead rate		225000*4.6+1950000
			2970000
	Overhead rate/hr		13.2
	Variable overhead per hr		4.6
	Fixed Overhead per hr		8.6
	1935000/225000
2	Direct Material		38	9.5*4
	Direct labor		19.95	13.3*1.5
	Variable Overhead		6.9	4.6*1.5
	Fixed overhead		12.9	8.6*1.5
	Standard cost		77.75
3A	Standard direct labor hrs		270000 hrs	180000*1.5
3B	Manufacturing overhead
	Actual		2837250	Applied	270000*13.2
	Overapplied		726750
4	Variable overhead eff Variance		SR(AH-SH)
			4.6(292500-270000)
			103500	Fav
	Variable overhead rate Variance		AH(AR-SR)
			789750-292500*4.6
			555750	UFAV
	Fixed overhead budget Variance		8.6(225000-270000)
			387000	FAV
	Fixed overhead volume variance		2047500-1935000
			112500	UFAV