Lane Company manufactures a single product that requires a greatdeal of hand labor. Overhead cost is applied on the basis ofstandard direct labor-hours. The budgeted variable manufacturingoverhead is $3.40 per direct labor-hour and the budgeted fixedmanufacturing overhead is $999,000 per year.
The standard quantity of materials is 4 pounds per unit and thestandard cost is $6.50 per pound. The standard direct labor-hoursper unit is 1.5 hours and the standard labor rate is $12.70 perhour.
The company planned to operate at a denominator activity levelof 135,000 direct labor-hours and to produce 90,000 units ofproduct during the most recent year. Actual activity and costs forthe year were as follows:
|
| Actual number of units produced | | 108,000 |
| Actual direct labor-hours worked | | 175,500 |
| Actual variable manufacturing overhead cost incurred | $ | 368,550 |
| Actual fixed manufacturing overhead cost incurred | $ | 1,053,000 |
|
Required:
1. Compute the predetermined overhead rate for the year. Breakthe 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 theyear’s production.
3b. Complete the following Manufacturing Overhead T-account forthe year.
4. Determine the reason for the underapplied or overappliedoverhead from (3) above by computing the variable overhead rate andefficiency variances and the fixed overhead budget and volumevariances.
