Reference no: EM132426858
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 $3.00 per direct labor-hour and the budgeted fixed manufacturing overhead is $735,000 per year.
The standard quantity of materials is 4 pounds per unit and the standard cost is $5.50 per pound. The standard direct labor-hours per unit is 1.5 hours and the standard labor rate is $12.50 per hour.
The company planned to operate at a denominator activity level of 105,000 direct labor-hours and to produce 70,000 units of product during the most recent year. Actual activity and costs for the year were as follows:
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Actual number of units produced
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84,000
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Actual direct labor-hours worked
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136,500
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Actual variable manufacturing overhead cost incurred
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$259,350
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Actual fixed manufacturing overhead cost incurred
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$750,750
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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 under-applied or over-applied overhead from (3) above by computing the variable overhead rate and efficiency variances and the fixed overhead budget and volume variances.