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) |