Primara Corporation has a standard cost system in which it applies overhead to p
ID: 2491760 • Letter: 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.) 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.))
Explanation / Answer
1.
Fixed portion of the predetermined overhead rate = (Budgeted fixed overhead) / (Budgeted labor hours)
= $473,600 / 64,000
= $7.40
2.
Fixed overhead budget variance = Actual fixed overhead – (Std. rate × Std. labor hours)
= 467,000 – ($7.40 × 62,000)
= 467,000 – 458,800
= $8,200 (U)
Fixed overhead volume variance = (Actual labor hours × Std. rate) – (Std. labor hours × Std. rate)
= (65,000 × $7.40) – (62,000 × $7.40)
= 481,000 – 458,800
= $22,200 (F)
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