PROBLEM 010-4 10A-12 Selection of a Denominator: Overhead Analysis; Standard Cost Card LO10-3, Morton Company's budgeted variable manufacturing overhead is $4.50 per direct labor-hour and its budgeted fixed manufacturing overhead is $270,000 per year The company manufactures a single product whose standard direct labor-hours per unit is 2 hours. The standard direct labor wage rate is $15 per hour. The standards also allow 4 feet of raw material per unit at a standard cost of $8.75 per foot. Standard Costs and Varlances normal activity is 30,000 direct labor-hours each year, the company expects to oper- 40.000-hour level of activity this year. at a Jesume that the company chooses 30,00 direct labor-hours as the denominator level of activ- the predetermined overhead rate, breaking it down into variable and fixed cost ity. Compute elements hat the company chooses 40,000 direct labor-hours as the denominatior level of activ- 2 ACmut the predetermined overhead ratc, breaking it down into variable and fised cost iry two standard cost cards as outlined below. Standard Standard Standard Quantity Price or Hours Cost or Rate Denominator Activity: 30,000 Direct Labor-Hours Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total standard cost per unit. 4 feet $8.75 per foot $35.00 Denominator Activity: 40,000 Direct Labor-Hours Direct materials $4 feet $8.75 per foot $35.00 Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total standard cost per unit................... 4 Assume that the company actually produces 18,000 units and works 38,000 direct labor-hours during the year. Actual manufacturing overhead costs for the year are: Variable manufacturing overhead cost Fixed manufacturing overhead cost Total manufacturing overhead cost $174,800 271,600 $446.400 Do the following: a. Compute the standard direct labor-hours allowed for this year's production. b. Complete the Manufacturing Overhead T-account below. Assume that the company uses 30,000 direct labor-hours (normal activity) as the denominator activity in computing pre- determined overhead rates, as you have done in (1) above. Manufacturing Overhead 446,400 Applied costs Actual costs Determine the cause of the underapplied or overapplied overhead for the year by comput- ing the variable overhead rate and efficiency variances and the fixed and volume variances. c. overhead budget ces you haye computed, what appears to be the major disadvan