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	$	433,100
Actual fixed overhead cost for the year	$	425,000
Budgeted direct labor-hours (denominator level of activity)		61,000
Actual direct labor-hours		62,000
Standard direct labor-hours allowed for the actual output		59,000

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. Fixed portion of the predetermined overhead rate per DLH 2. Budget variance Volume variance

Answer 1

Answer

• Requirement 1

Fixed portion of the predetermined Overhead rate
= ($433100 Budgeted fixed overhead / 61000 budgeted DLHs)
= $ 7.10 per DLH

• Requirement 2

2.	Budget variance	$ 8100	F
	Volume variance	$ 14200	U

--Working

	Hrs	Rate	Amount
Budgeted Fixed Overhead	61000	$                   7.10	$        433,100.00
Standard Fixed Overhead or Fixed Overhead absorbed	59000	$                   7.10	$        418,900.00
Actual Fixed Overhead incurred	62000	6	$        425,000.00

Fixed Overhead Production Budget Variance
(	Budgeted Fixed Overhead	-	Actual Fixed Overhead incurred	)
(	$                   433,100.00	-	$          425,000.00	)
	8100
	Variance		$              8,100.00			Favourable-F

Fixed Overhead Production Volume Variance
(	Standard Fixed Overhead or Fixed Overhead absorbed	-	Budgeted Fixed Overhead	)
(	$                   418,900.00	-	$          433,100.00	)
	-14200
	Variance		$            14,200.00			Unfavourable-U