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 $5.20 per direct labor-hour and the budgeted fixed manufacturing overhead is $2,484,000 per year.

The standard quantity of materials is 4 pounds per unit and the standard cost is $11.00 per pound. The standard direct labor-hours per unit is 1.5 hours and the standard labor rate is $13.60 per hour.

The company planned to operate at a denominator activity level of 270,000 direct labor-hours and to produce 180,000 units of product during the most recent year. Actual activity and costs for the year were as follows:

Actual number of units produced		216,000
Actual direct labor-hours worked		351,000
Actual variable manufacturing overhead cost incurred	$	1,053,000
Actual fixed manufacturing overhead cost incurred	$	2,808,000

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.

	Manufacturing Overhead Actual costs Applied costs 0

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