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	$495,900
Actual fixed overhead cost for the year	$486,000
Budgeted standard direct labor-hours (denominator level of activity)	57,000
Actual direct labor-hours	58,000
Standard direct labor-hours allowed for the actual output	55,000

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.))

     

Answer 1

Requirement - 1

Fixed portion of the predetermined overhead rate for the year = $8.70 per DLH

Fixed portion of the predetermined overhead rate = Fixed overhead / Denominator level of activity

= $495,900 / 57,000

= $8.70 per DLH

Requirement - 2

Budget variance= Actual FOH – Budgeted FOH

= $486,000 – 495,900

= $9,900 F ( Favorable)

Volume variance = Fixed proportion of the predetermined overhead rate × (Denominator hours – Standard hours allowed)

= $8.70 per DLH × (57,000 DLH – 55,000 DLH)

= $17,400 U (Unfavorable)