PROBLEM 11A-8 Applying Overhead; Overhead Variances [L011-3, L011-4J

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

$2 per standard direct labor-hour and fixed manufacturing overhead should be $480,000 per year.

The company's product requires 3 pounds of material that has a standard cost of $7 per pound and 1.5 hours of direct labor time that has a standard rate of $12 per hour.

The company planned to operate at a denominator activity level of 60,000 direct labor-hours and to produce 40,000 units of product during the most recent year. Actual activity and costs for the year were as follows: