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 $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		228,000
Actual direct labor-hours worked		370,500
Actual variable manufacturing overhead cost incurred	$	1,148,550
Actual fixed manufacturing overhead cost incurred	$	2,964,000

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