# 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

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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)