Lane Company manufactures a single product that requires a great deal of hand la
ID: 2501798 • Letter: L
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. Variable manufacturing overhead should be $2.40 per standard direct labor-hour and fixed manufacturing overhead should be $384,000 per year.
The company’s product requires 4 pounds of material that has a standard cost of $4.00 per pound and 1.5 hours of direct labor time that has a standard rate of $12.20 per hour.
The company planned to operate at a denominator activity level of 60,000 direct labor-hours and to produce 40,000 units of product during the most recent year. Actual activity and costs for the year were as follows:
Compute the predetermined overhead rate for the year. Break the rate down into variable and fixed elements. (Round your answers to 2 decimal places.)
Prepare a standard cost card for the company’s product. (Round your answers to 2 decimal places.)
Compute the standard direct labor-hours allowed for the year’s production.
Complete the following Manufacturing Overhead T-account for the year:
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. Variable manufacturing overhead should be $2.40 per standard direct labor-hour and fixed manufacturing overhead should be $384,000 per year.
Explanation / Answer
1
Calculation of predetermined overhead rate for the year:
Variable rate
$ 2.40
Per DLH
Fixed rate = $384000 / 60000 Hours
$ 6.40
Per DLH
Predetermined overhead rate
$ 8.80
Per DLH
2
Standard Cost card:
Direct materials
4
pounds at
$ 4.00
per pound
$ 16.00
Direct labor
1.5
DLHs at
$ 12.20
per DLH
$ 18.30
Variable overhead
1.5
DLHs at
$ 2.40
per DLH
$ 3.60
Fixed overhead (60000 Hours /40000 Units)
1.5
DLHs at
$ 6.40
per DLH
$ 9.60
Standard cost per unit
$ 47.50
3
Calculation of standard direct labor-hours allowed for the year’s production:
Actual Units Produced (A)
48000
Standard direct labor hours per unit (B)
1.5
Standard direct labor-hours allowed for the year’s production =A*B
72000
4
Manufacturing overhead :
Actual Costs :
Applied Costs :
Variable
$ 124,800
Variable (78000 Hours *$2.40)
$ 187,200
Fixed
$ 429,000
Fixed (78000 Hours *$6.40)
$ 499,200
Total
$ 553,800
Total
$ 686,400
Over applied Overhead
$ 132,600
(686400-553800)
1
Calculation of predetermined overhead rate for the year:
Variable rate
$ 2.40
Per DLH
Fixed rate = $384000 / 60000 Hours
$ 6.40
Per DLH
Predetermined overhead rate
$ 8.80
Per DLH
2
Standard Cost card:
Direct materials
4
pounds at
$ 4.00
per pound
$ 16.00
Direct labor
1.5
DLHs at
$ 12.20
per DLH
$ 18.30
Variable overhead
1.5
DLHs at
$ 2.40
per DLH
$ 3.60
Fixed overhead (60000 Hours /40000 Units)
1.5
DLHs at
$ 6.40
per DLH
$ 9.60
Standard cost per unit
$ 47.50
3
Calculation of standard direct labor-hours allowed for the year’s production:
Actual Units Produced (A)
48000
Standard direct labor hours per unit (B)
1.5
Standard direct labor-hours allowed for the year’s production =A*B
72000
4
Manufacturing overhead :
Actual Costs :
Applied Costs :
Variable
$ 124,800
Variable (78000 Hours *$2.40)
$ 187,200
Fixed
$ 429,000
Fixed (78000 Hours *$6.40)
$ 499,200
Total
$ 553,800
Total
$ 686,400
Over applied Overhead
$ 132,600
(686400-553800)
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