Problem 9A-8 Applying Overhead; Overhead Variances [LO9-6, LO9-7]

Lane Company manufactures a single product and applies overhead cost to that product using standard direct labor-hours. The budgeted variable manufacturing overhead is $2.60 per direct labor-hour and the budgeted fixed manufacturing overhead is $495,000 per year.

The standard quantity of materials is 4 pounds per unit and the standard cost is $4.50 per pound. The standard direct labor-hours per unit is 1.5 hours and the standard labor rate is $12.30 per hour.

The company planned to operate at a denominator activity level of 75,000 direct labor-hours and to produce 50,000 units of product during the most recent year. Actual activity and costs for the year were as follows:

Actual number of units produced		60,000
Actual direct labor-hours worked		97,500
Actual variable manufacturing overhead cost incurred	$	165,750
Actual fixed manufacturing overhead cost incurred	$	536,250

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 companys 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 any underapplied or overapplied overhead for the year by computing the variable overhead rate and efficiency variances and the fixed overhead budget and volume variances.