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 Actual fixed overhead cost for the year Budgeted standard direct labor-hours (denominator level of activity) Actual direct labor-hours Standard direct labor-hours allowed for the actual output $510,400 $502,000 58,000 59,000 56,000 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 Denominator hours Standard hours allo Volume variance per DLH DLHs DLHs wed

Explanation / Answer

SOLUTION

(A) Predetermined overhead Rate = Overhead from the budget / Denominator level of activity

= $510,400 / 58,000 hours

= $8.8

(B) Budget variance = Actual fixed overhead cost - Flexible budget overhead cost

= $502,000 - $510,400

= $8,400 F

Volume Variance = Predetermined overhead rate * (Denominator hours - Standard hours allowed)

= $8.8 * (58,000 - 56,000)

= $8.8 * 2,000

= $17,600 U

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