Exercise 10A-1 Fixed Overhead Variances [LO10-4]
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 | $ | 530,400 |
| Actual fixed overhead cost for the year | $ | 521,000 |
| Budgeted direct labor-hours (denominator level of activity) | 68,000 | |
| Actual direct labor-hours | 69,000 | |
| Standard direct labor-hours allowed for the actual output | 66,000 | |
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. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.). Input all amounts as positive values.)
(1)-The fixed portion of the predetermined overhead rate for the year.
The fixed portion of the predetermined overhead rate for the year = Total budgeted fixed overhead cost for the year / Budgeted direct labor-hours
= $530,400 / 68,000 direct labor-hours
= $7.80 per direct labor-hour
(2)-The fixed overhead budget variance and volume variance
The fixed overhead budget variance
The fixed overhead budget variance = Actual fixed overhead cost for the year - Total budgeted fixed overhead cost for the year
= $521,000 - $530,400
= $9,400 F [Favorable]
The fixed overhead volume variance
The fixed overhead volume variance = [BH – SH] x fixed portion of the predetermined overhead rate
= [68,000 hours – 66,000 hours] x $7.80 per direct labor hours
= $15,600 U [Unfavorable]
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