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 direct labor-hours (denominator level of activity) Actual direct labor-hours Standard direct labor-hours allowed for the actual output $473,600 $ 467,000 64,000 65,000 62,000 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 2. Budget variance per DLH Volume variance

Explanation / Answer

Answer of Part 1:

Pre-determined Overhead Rate = Budgeted Fixed Overhead / Budgeted Standard Direct Labor Hours (denominator level of activity)
Pre-Determined Overhead Rate = $473,600 / 64,000
Pre-Determined Overhead Rate = $7.4 per hour

Answer of Part 2:

Budget Variance = Budgeted Fixed Overhead Cost – Actual Fixed Overhead cost
Budget Variance = $473,600 - $467,000
Budget Variance = $6,600 Favourable

Volume Variance = Pre-determined Overhead Rate * (denominator hours- Standard hours allowed)
Volume Variance = $7.4 * (64,000 – 62,000)
Volume Variance = $7.4 * 2,000
Volume Variance = $14,800 Unfavourable

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