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 $501,600 $495,000 66,000 67,000 64,000 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 fied overhead cost Budget variance Volume Variance Fixed portion of the predetermined overhead rate Denominator hours Standard hours allowed Volume variance DLH DLHs DLHs

Explanation / Answer

Solution:

Part 1 –

Fixed Overhead (Budgeted)

$501,600

Denominator level of activity

66,000

Direct labor hours

Fixed Portion of the predetermined Overhead rate

$7.60

per direct labor hour

Part 2 –

Budget Variance

Actual fixed overhead cost for the year

$495,000

Budgeted fixed overhead cost

$501,600

Budget Variance

$6,600

(501600 – 495,000)

Favorable

(since the actual fixed cost is less than budgeted)

Volume Variance

Fixed Portion of the predetermined overhead rate

$7.60

DLH

Denominator hours

66000

DLHs

Standard Hours allowed

64000

DLHs

Volume Variance (66,000 - 64,000)*7.60

$15,200

Unfavorable

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Fixed Overhead (Budgeted)

$501,600

Denominator level of activity

66,000

Direct labor hours

Fixed Portion of the predetermined Overhead rate

$7.60

per direct labor hour

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