Lane Company manufactures a single product that requires a great deal of hand la

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 $2.20 per direct labor-hour and the budgeted fixed manufacturing overhead is $279,000 per year. The standard quantity of materials is 4 pounds per unit and the standard cost is $3.50 per pound. The standard direct labor-hours per unit is 1.5 hours and the standard labor rate is $12.10 per hour. The company planned to operate at a denominator activity level of 45,000 direct labor-hours and to produce 30,0 DO units of product during the most recent year. Actual activity and costs for the year were as follows: Actual number of units produced Actual direct labor-hours worked Actual variable manufacturing overhead cost incurred Actual fixed manufacturing overhead cost incurred 36,000 58,500 $ 87,750 $ 321,750 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.

Explanation / Answer

1) Predetermined Overhead Rate:-

= Variable Overhead Rate + Fixed Ovehead Rate

= $2.20 + $6.2

= $8.40 Direct Labor Hour

Variable Overhead Rate = $2.20 per Direct Labor Hour

Fixed Ovehead Rate = Budgeted Fixed Overhead / Estimated Direct Labor Hour

= $279000 / 45000

= $6.20 Per Direct Labor Hour

2) Standard Cost Card of the Copany ;-

3a) Standard Direct Labor Hour :-

= Actual No. of Unit Produce * Standard DLH per Unit

= 36000 * 1.5

= 54000

b) Manufacturing Overhead A/c :-

4)

a) Variable Overhead Rate Variance :-

= (Actual Rate * Actual Hour) - (Standard Rate * Actual Hour)

= ($87750 - ($2.20*58500))

= ($87750 - $128700)

= $40950 F

B) Variable Overhead efficiency variance:-

= (Actual Hour-Standard Hour)*Standard Rate

= (58500 - 54000)*2.20

= $9900 UF

C) Fixed overhead budget Variance:-

= Actual Fixed Overhead - Budgeted Fixed Overhead

= ($321750 - $279000)

= $42750 UF

D) Fixed overhead volume variances:-

= ( Budgeted Fixed Overhead - (Standard Hour Allowed * Standard Rate))

= (279000 - (54000*6.20))

= $ 55800 F

Direct Material 4 Pounds at 3.50 Per Pound 14.0 Direct Labor 1.5 DLHs at 12.10 Per DLH 18.15 Variable Overhead 1.5 DLHs at 2.20 Per DLH 3.3 Fixed Overhead 1.5 DLHs at 6.20 Per DLH 9.3 Standad Cost Per Unit 44.75

Related Questions

Navigate

• Browse (All)
• Browse L
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.