Lane Company manufactures a single product requiring a great deal of hand labor. Overhead cost is applied based on standard direct labor-hours. The budgeted variable manufacturing overhead is $4.80 per direct labor-hour and the budgeted fixed manufacturing overhead is $2,112,000 per year. The standard quantity of materials is 4 pounds per unit and the standard cost is $10.00 per pound. The standard direct labor-hours per unit is 1.5 hours and the standard labor rate is $13.40 per hour. The company planned to operate at a denominator activity level of 240,000 direct labor-hours and to produce 160,000 units during the most recent year. Actual activity and costs for the year were as follows: Actual number of units produced 192,000 Actual direct labor-hours worked 312,000 Actual variable manufacturing overhead cost incurred $ 873,600 Actual fixed manufacturing overhead cost incurred $ 2,184,000 Required: 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. Note: Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Show less Variable overhead rate variance ? F Variable overhead efficiency variance ? U Fixed overhead budget variance ? U Fixed overhead volume variance ? F
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Lane Company manufactures a single product requiring a great deal of hand labor.
The standard quantity of materials is 4 pounds per unit and the
The company planned to operate at a denominator activity level of 240,000 direct labor-hours and to produce 160,000 units during the most recent year. Actual activity and costs for the year were as follows:
| Actual number of units produced | 192,000 |
|---|---|
| Actual direct labor-hours worked | 312,000 |
| Actual variable |
$ 873,600 |
| Actual fixed manufacturing overhead cost incurred | $ 2,184,000 |
Required:
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.
Note: Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.
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