Q1. 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:
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Number of units produced
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42,000
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Actual direct labor-hours worked
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65,000
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Actual variable manufacturing overhead cost incurred
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$123,500
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Actual fixed manufacturing overhead cost incurred
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$483,000
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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 year's production.
3b. Complete the following Manufacturing Overhead T-account for the year: Using actual costs, applied costs, and standard costs to compute the overhead and determine with it is over or underapplied.
4. Determine the reason for the underapplied or overapplied overhead from (3) above by computing the variable overhead rate and efficiency variances and the fixed overhead budget and volume variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
Q2. Trueform Products, Inc., produces a broad line of sports equipment and uses a standard cost system for control purposes. Last year the company produced 8,000 varsity footballs. The standard costs associated with this football, along with the actual costs incurred last year, are given below (per football):
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Standard Cost
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Actual Cost
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Direct materials:
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Standard: 3.7 feet at $5.00 per foot
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$18.50
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Actual: 4.0 feet at $4.80 per foot
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$19.20
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Direct labor:
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Standard: 0.9 hours at $7.50 per hour
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6.75
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Actual: 0.8 hours at $8.00 per hour
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6.40
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Variable manufacturing overhead:
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Standard: 0.9 hours at $2.50 per hour
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2.25
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Actual: 0.8 hours at $2.75 per hour
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2.20
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Total cost per football
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|
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The president was elated when he saw that actual costs exceeded standard costs by only $0.30 per football. He stated, "I was afraid that our unit cost might get out of hand when we gave out those raises last year in order to stimulate output. But it's obvious our costs are well under control."
There was no inventory of materials on hand to start the year. During the year, 32,000 feet of materials were purchased and used in production.
Required:
1. For direct materials:
a. Compute the price and quantity variances for the year.
b. Prepare journal entries to record all activity relating to direct materials for the year.
2. For direct labor:
a. Compute the rate and efficiency variances.
b. Prepare a journal entry to record the incurrence of direct labor cost for the year.
3. Compute the variable overhead rate and efficiency variances.