Question & Answer: Primara Corporation has a standard cost system in which it applies overhead to products based on the standard direct labor-ho…..

Primara Corporation has a standard cost system in which it applies overhead to products based on the standard direct labor-hours allowed for the actual output of the period. Data concerning the most recent year appear below:
  Total budgeted fixed overhead cost for the year $530,400
  Actual fixed overhead cost for the year $521,000
  Budgeted standard direct labor-hours (denominator level of activity) 68,000
  Actual direct labor-hours 69,000
  Standard direct labor-hours allowed for the actual output 66,000
Required:
1. Compute the fixed portion of the predetermined overhead rate for the year. (Round Fixed portion of the predetermined overhead rate to 2 decimal places.)

 

2. Compute the fixed overhead budget variance and volume variance. (Round Fixed portion of the predetermined overhead rate to 2 decimal places. Indicate the effect of each variance by indicating “F” for favorable, “U” for unfavorable

 

Expert Answer

 

1) Compute the fixed portion of the predetermined overhead rate for the year.

Solution:

1) predetermined overhead rate
Budgeted fixed overhead 530400
Budgeted standard direct labor hours (denominator level of activity) 68000
Fixed portion of the predetermined overhead rate 7.8

2) Compute the fixed overhead budget variance and volume variance

Solution:

2) Budget Variance
Actual fixed overhead cost for the year 521000
Budgeted fixed overhead cost 530400
Budget Variance 9400 (F)
Volume variance
Fixed portion of the predetermined overhead rate 7.8
Denominator hours 68000
Standard hours allowed 66000
Volume variance = predetermined overhead rate * (denominator hours – standard hours allowed) 15600 (U)
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