Lane Company manufactures a single product that requires a g

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 $6.00 per standard direct labor-hour and fixed manufacturing overhead should be $3,300,000 per year. The company\'s product requires 4 pounds of material that has a standard cost of $13.00 per pound and 1.5 hours of direct labor time that has a standard rate of $14.00 per hour The company planned to operate at a denominator activity level of 330,000 direct labor-hours and to produce 220,000 units of product during the most recent year. Actual activity and costs for the year were as follows: 264,000 429,000 Number of units produced Actual direct labor-hours worked Actual variable manufacturing overhead cost incurred1,458,600 Actual fixed manufacturing overhead cost incurred $ 3,432,000 Required 1. Compute the predetermined overhead rate for the year. Break the rate down into variable and fixed elements. (Round your answers to 2 decimal places.) Predetermined overhead per DLH per DLH per DLH Variable rate Fixed rate

Solution

Req 1: Pre-determined OH rate per DLH: Variable rate 8 Fixed Rate Budgetd fixed OH 3300000 Divide: Budgeted DLH 330000 10 OH rate per hour 18 Req 2. Standard cost card: Direct Material 4 pounds @13 52 Direct Labour 1.50 hours @ 14 21 Vvraiable OH 1.50 hours @ 8 12 Fixed OH 1.50 hours @10 15 Standard cost per unit 100 Req 3: Number of units produced 264000 DLH required per unit 1.5 Std labour hours allowed 396000 Req 4: Manufacturing OH Accounts payable 1458600 Work in Process 7722000 Accounts payable 3432000 (429000 DLH @ 18) Balance 2831400 Req 5: Actual Output: 264000 Std hours allowed (264000*1.50): 396000 hrs Std variable OH rte: 8 Std fixed OH rate: 10 Budgeted Fixed OH: 3300,000 Actual variable OH: 1458600 Actual fixed OH: 3432000 Actual Variable OH rate (1458600/429000): 3.40 per hour Variable OH rate variance: Actual hours(Std rate-Actual Rate) 429000 (8.00-3.40)= 1973400 Fav Variable OH efficiency variance: Std rate (Std hours-Actual hours) 8.00 (396000-429000)= $ 264000 Unfav Fixed OH Budget variance: Budgetd fixed OH-Actual fixed OH 3300,000- 3432000 =$ 132000 Unfav Fixed OH Volume variance: Std Ohh for actual output -Budgeted Fixed OH 396000*10 - 3300000 = 660,000 Fav