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 $530,400
Actual fixed overhead cost for the year $521,000
Budgeted standard 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.
2. Compute the fixed overhead budget variance and volume variance.

Answer 1

See below

Step-by-step explanation:

1. Predetermined overhead rate

= Total fixed overhead cost for the year / Budgeted standard direct labor hour

Predetermined overhead rate = $530,400 / 68,000

Predetermined overhead rate

= $7.8 per direct labor hour

2. i. Fixed overhead budget variance

= Actual fixed overhead - Budgeted fixed overhead

= $521,000 - $530,400

= $9,400 favourable

ii Fixed overhead volume variance

= Budgeter fixed overhead - Fixed overhead applied to work in process

= $530,400 - (66,000 × $7.8)

= $530,000 - $514,800

= $15,200 unfavorable