Lane Company manufactures a single product that requires a great deal of hand la
ID: 2653283 • 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 $4.20 per standard direct labor-hour and fixed manufacturing overhead should be $1,599,000 per year.
The company’s product requires 4 pounds of material that has a standard cost of $8.50 per pound and 1.5 hours of direct labor time that has a standard rate of $13.10 per hour.
The company planned to operate at a denominator activity level of 195,000 direct labor-hours and to produce 130,000 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.)
Complete the following Manufacturing Overhead T-account for the year:
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. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
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 $4.20 per standard direct labor-hour and fixed manufacturing overhead should be $1,599,000 per year.
Predetermined overhead rate Variable rate Fixed rate per DLH per DLH per DLHExplanation / Answer
1)
Pre-determined overhead rate can be computed using the following formula:
Pre-determined overhead rate = (Fixed overhead + Variable overhead)/Planned activity
= ($819000+$1,599,000)/195,000
=$12.4 per hour
Hence, pre-determined overhead rate is $12.4 per hour.
Variable overhead = Direct labor hours * standard rate
=195,000*$4.2
=819,000
Variable rate =$819,000/195000
=4.2 per hour
Fixed rate =$1,599,000/195000
=8.2 per hour
2)
Determining the standard cost per unit:
Direct materials
4
Pounds at
8.5
per pound
34
Direct labor
1.5
DLH at
13.1
per DLH
19.65
Variable overhead
1.5
DLH at
4.2
per DLH
6.3
Fixed overhead
1.5
DLH at
8.2
per DLH
12.3
Total cost
72.25
3a)
Standard labor hours = Number of units * standard hours per unit
=130,000*$1.5
=195,000 hours
3b)
Manufacturing overhead in T account:
Manufacturing overhead
Remarks
2408250
2418000
Applied costs
9750
Over applied overhead
Direct materials
4
Pounds at
8.5
per pound
34
Direct labor
1.5
DLH at
13.1
per DLH
19.65
Variable overhead
1.5
DLH at
4.2
per DLH
6.3
Fixed overhead
1.5
DLH at
8.2
per DLH
12.3
Total cost
72.25
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.