PROBLEM 10A–9 Selection of a Denominator; Overhead Analysis; Standard Cost Card[LO3, LO4]Scott Company’s variable manufacturing overhead should be $2.50 per standard direct labor-hour and fixed manufacturing overhead should be $320,000 per year.
The company produces a single product that requires 2.5 direct labor-hours to complete. The direct labor wage rate is $20 per hour. Three yards of raw material are required for each unit of product, at a cost of $5 per yard.
Demand for the company’s product differs widely from year to year. Expected activity for this year is 50,000 direct labor-hours; normal activity is 40,000 direct labor-hours per year.
1. Assume that the company chooses 40,000 direct labor-hours as the denominator level of activ- ity. Compute the predetermined overhead rate, breaking it down into fixed and variable cost components.
2. Assume that the company chooses 50,000 direct labor-hours as the denominator level of activ- ity. Repeat the computations in (1) above.
3. Complete two standard cost cards as outlined below.
4. Assume that 48,000 actual hours are worked during the year, and that 18,500 units are pro- duced. Actual manufacturing overhead costs for the year are as follows:
a. Compute the standard hours allowed for the year’s actual output.
b. Compute the missing items from the Manufacturing Overhead account below. Assume that the company uses 40,000 direct labor-hours (normal activity) as the denominator activity figure in computing overhead rates, as you have used in (1) above.
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