Question:
Wymont Company manufactures a single product that needs a large amount of labor time. Overhead cost is applied on the basis of standard direct labor-hours. Variable manufacturing overhead would be $2.00 per standard direct labor-hour and fixed manufacturing overhead would be $180,000 per year.
The company's product needs 4 feet of direct material that has a standard cost of $3.00 per foot. The product needs 1.5 hours of direct labor time. The standard labor rate is $12.00 per hour.
In the current year, the company had planned to operate at a denominator activity level of 30,000 direct labor-hours and to make 20,000 units of product. Actual activity and costs for the year were as given:
Required:
1. Evaluate the predetermined overhead rate for the year. Break the rate down into fixed and variable components.
2. Organize a standard cost card for the company's product; show the details for all manufacturing costs on your standard cost card.
3. a. Determine the standard direct labor-hours allowed for the year's production.33,000 standard DLHs
b. Complete the subsequent Manufacturing Overhead T-account for the year:
4. Evaluate the reason for the overapplied and underapplied overhead from (3) above by computing the variable overhead rate and efficiency variances and the fixed overhead budget and volume variances.
Budget variance: $1,000 U
5. Assume the company had chosen 36,000 direct labor-hours as the denominator activity rather than 30,000 hours. State which, if any, of the variances computed in (4) above could have changed, and illustrate how the variance(s) would have changed. No computations are essential.