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| 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 | $413,100 |
| Actual fixed overhead cost for the year | $404,100 |
| Budgeted standard direct labor-hours (denominator level of activity) | 51,000 |
| Actual direct labor-hours | 52,000 |
| Standard direct labor-hours allowed for the actual output | 49,000 |
| 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 selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance.)) |
Expert Answer
SOLUTION:
1) Fixed portion of the predetermined overhead rate for the year
= Total Budgeted Fixed OH for the year/Budgeted standard labor hours
=413,100 / 51000 = $8.1 per Std Lab Hr
2) Fixed-overhead budget variance = actual fixed OH – budgeted fixed OH
= $404,100 – $413,100 = 9000 U
Fixed-overhead volume variance = Budgeted fixed OH – Applied fixed OH =
Applied fixed OH = ($413,000 ÷ 52,000) * 51,000 = $405,058
Fixed-overhead volume variance = $413,000 – $405,058= 7,942
