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

ID: 2491971 • 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

$515,900

  Actual fixed overhead cost for the year

$509,000

  Budgeted standard direct labor-hours (denominator level of activity)

67,000

  Actual direct labor-hours

68,000

  Standard direct labor-hours allowed for the actual output

65,000

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.)

Fixed overhead

Denominator level of activity

Fixed portion of the predetermined overhead rate


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.))

     

Budget Variance

Actual fixed overhead cost for the year

Budgeted fixed overhead cost

Budget variance

Volume Variance

Fixed portion of the predetermined overhead rate

DLH

Denominator hours

DLHs

Standard hours allowed

DLHs

Volume variance

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:

Explanation / Answer

Answer:1

Fixed portion of the predetermined overhead rate for the year= Total Budgeted Fixed Overhead cost for the year / Budgeted standard DLH

Fixed portion of the predetermined overhead rate for the year= $515900 / 67000 hours = $7.70 per DLH

Fixed overhead

Denominator level of activity

Fixed portion of the predetermined overhead rate

Answer:2

Fixed overhead budget variance = Budgeted fixed overhead cost - Actual fixed overhead cost for the year

Fixed overhead budget variance = $515900 - $509000 = $6900 F

Fixed overhead volume variance = Fixed portion of the predetermined overhead rate *(Standard hours allowed for actual output - Denominator hours)

Fixed overhead volume variance = $7.70 per DLH (65000 hrs. - 67000 hrs.)

= $7.70 per DLH * 2000 hrs. = $15400 U

Budget Variance

Actual fixed overhead cost for the year

Budgeted fixed overhead cost

Budget variance

Volume Variance

Fixed portion of the predetermined overhead rate

DLH

Denominator hours

DLHs

Standard hours allowed

DLHs

Volume variance

Fixed overhead

$515900

Denominator level of activity

67000 hours

Fixed portion of the predetermined overhead rate

$7.70 per DLH
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