Primara Corporation has a standard cost system in which it applies overhead to p

Question

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 $473,600 Actual fixed overhead cost for the year $467,000 Budgeted standard direct labor-hours (denominator level of activity) 64,000 Actual direct labor-hours 65,000 Standard direct labor-hours allowed for the actual output 62,000 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.)

Explanation / Answer

Working Notes :-

1. Volume Variance = Budgted Fixed Overhead - Standard Fixed Ovehead

= 473600-458800 = 14800

1.a Standard Fixed Overhead = Standard labour hour * standard rate per hour

= 62000* 7.4 = 458800

1.b. Standard rate per hour = Budgeted Fixed overhead / Budgeted labour hours

= 473600/64000 = 7.4

Fixed portion of the predetermined overhead rate (FPOHR) =  Volume Variance / (Budget labor hours - Standard labor hours)

FPOHR = 14800/2000 = 7.4

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