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 $3.40 per direct labor-hour and the budgeted fixed manufacturing overhead is $999,000 per year. The standard quantity of materials is 4 pounds per unit and the standard cost is $6.50 per pound. The standard direct labor-hours per unit is 1.5 hours and the standard labor rate is $12.70 per hour. The company planned to operate at a denominator activity level of 135,000 direct labor-hours and to produce 90,000 units of product during the most recent year. Actual activity and costs for the year were as follows: Actual number of units produced 108,000 Actual direct labor-hours worked 175,500 Actual variable manufacturing overhead cost incurred $ 368,550 Actual fixed manufacturing overhead cost incurred $ 1,053,000 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.

Answer 1

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Part 1
Estimated Fixed Manufacutring overheads		$                   999,000	a
Estimated Variable Manufacutring overheads	135,000*$3.40	$                   459,000	b
Total Manufacturing overheads		$               1,458,000	c
Estimated Direct Labor hours		135,000	d
Predetermined overhead Rate		$                       10.80	c/d
Predetermined overhead Rate-Fixed		$                          7.40	a/d
Predetermined overhead Rate-Variable		$                          3.40	b/d
Part 2
	Quantity		Rate		Standard Cost
Direct Materials	4.00	Pound	$              6.50	per pound	$                    26.00
Direct Labor	1.50	Hours	$           12.70	Hours	$                    19.05
Variable Overheads	1.50	Hours	$              3.40	Hours	$                       5.10
Fixed Overheads	1.50	Hours	$              7.40	Hours	$                    11.10
Standard cost per unit					$                    61.25
Part 3a
Standard direct labor-hours allowed	162,000
108,000 actual units*1.5 Hours per unit
Part 3b
Manufacturing overhead
Debit		Credit
Actual Overheads	$             1,421,550	Applied	$   1,749,600
		162,000*$10.80
		Overapplied	$       328,050
Part 4
Variable Overheads			Hours	Per Hour	Cost
Actual Cost	a		175,500	$              2.10	$                368,550
Actual input at Standard Price	b		175,500	$              3.40	$                596,700
Flexible budget	c		162,000	$              3.40	$                550,800
Price Variance	a-b				$                228,150	F
Efficiency Variance	b-c				$                  45,900	U
Cost Variance	a-c				$                182,250	F
Fixed Overheads			Cost
Actual Cost	a		$   1,053,000
Budgeted Cost	b		$       999,000
Applied	c	162,000*$7.40	$   1,198,800
Price Variance	a-b		$         54,000	U
Production Volume Variance	b-c		$       199,800	F
Cost Variance	a-c		$       145,800	F
Variable Overhead:
Rate Variance	$                228,150	F
Efficiency Variance	$                   45,900	U
Fixed Overheads:
Budget Variance	$                   54,000	U
Volume Variance	$                199,800	F
Overapplied overheads same as in 3b	$                328,050