Company manufactures a single product that requires a great

Company manufactures a single product that requires a great deal of hand labor. Overhead cost is direct labor-hours. The budgeted varlable manufacturing overhead is $5.60 per direct labor-hour and the budgeted fixed applied on the basis of manufacturing overhead is $2,880,000 per year. The standard quantity of materials is 4 pounds per unit and the standard cost is $12.00 per pound. The standard direct labor-hours pe unit is 1.5 hours and the standard labor rate is $13.80 per hour The company planned to operate at a denominator activity level of 300,000 direct labor-hours and to produce 200,000 units of product during the most recent year. Actual activity and costs for the year were es follows: Actual number of units produced Actual direct labor-hours worked Actual variable manufacturing overhead cost incurred$1,248,000 Actual fixed manufacturing overhead cost incurred 240,000 390,000 $3,120,000 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 years 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 varlances and the fixed overhead budget and volume variances. Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3AReq 38 Req 4 Compute the predetermined overhead rate for the year. Break the rate down into variable and fixed elements. (Round your answers to 2 décimal places.)

Solution

Variable manufacturing overhead rate per standard direct labour hour = $5.60

Planned denominator level of activity =300000 direct labour hours

Total variable manufacturing overhead =$5.60*300000

=$1680000.

Total overhead = fixed manufacturing overhead + variable manufacturing overhead

=$2880000+$1680000

=$4560000

Predetermined overhead rate =$4560000/300000

=$15.20

Predetermined overhead breakdown into fixed and variable

Variable overhead rate =$1680000/300000

=$5.60 per direct labour hour

Fixed overhead rate =$2880000/300000

=$9.6 per direct labour hour

2. Preparation of standard cost card of the company product:

Direct materials ( 4 pounds @$12.00per pound)=$48.00

Direct labour (1.5 hours @$13.80 per hour )=$20.70

Variable overhead (1.5 hours @$5.60 per hour)=$ 8.40

Fixed overhead (1.5hour @ $9.6 per hour)=$14.40

Standard cost of the product=$91.50

3.

a) Standard direct labour hours allowed in production

Number of units actually produced=240000

Direct labour hour allowed per unit=1.5 Hours

Standard direct labour hours allowed per production=240000 * 1.5 hours

=360000 Hours

b) Manufacturing overhead T account

Std overhead 3648000

(240000*15.20)

Actual over head 4369000

Over applied overheads 721000

4.

Variable over head variance =

{ Acutal variable manufacturing overhead costs –(Actual direct labour hours used * standard rate)}

={$1248000-(390000*$5.6)}

=$936000 favourable

Variable overhead efficiency variance

={standard rate * ( Actual labour hours – standard labour hours)

=$5.6 * (390000-360000)

=$168000 Unfavourable

Fixed overhead variance

= Budgeted fixed overhead – actual fixed overhead

=$2880000-3120000

=$240000 unfavourable

Fixed overhead volume variance

=( standard direct labour allowed- actual labour hours) * predetermined fixed overhead rate

=(360000-390000) * $15.20

=$456000 Unfavourable

Std overhead 3648000 (240000*15.20)	Actual over head 4369000
Over applied overheads 721000