Chapter 10A, Problem 10A.1E

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:

Required:

1. Compute the fixed portion of the predetermined overhead rate for the year.
2. Compute the fixed overhead budget variance and volume variance.

To determine

Fixed portion of the predetermined overhead rate of the year.

Introduction: Fixed overhead volume variances mean a measure that defines the difference between budgeted fixed overhead costs and actual cost of fixed overhead costs. This explains the units produced based on the standard hours allowed and standard fixed rate.

Answer to Problem 10A.1E

  $\begin{array}{l}Fixedportionofthepre\det er\min edoverheadrate=\frac{Fixedoverhead}{Budgeteds\tan darddirectlaborhour}\\ Fixedportionofthepre\det er\min edoverheadrate=\frac{250,000}{25,000}=10\end{array}$

Explanation of Solution

  $\begin{array}{l}Budgeted\mathrm{var}iances=Actualfixedoverhead-Budgetedfixedoverhead\\ Budgeted\mathrm{var}iances=254,000-250,000\\ Budgeted\mathrm{var}iances=4,000U\end{array}$

To determine

Fixed overhead budget variance and volume variance.

Introduction: Fixed overhead volume variances mean a measure that defines the difference between budgeted fixed overhead costs and actual cost of fixed overhead costs. This explains the units produced based on the standard hours allowed and standard fixed rate.

Answer to Problem 10A.1E

  $Fixedoverheadvolume\mathrm{var}inace=\left[\begin{array}{l}Budgetedfixedoverheadforactualoutputs-\\ S\tan dardfixedoverheadallocatedtoproduction\end{array}\right]$

  $\begin{array}{l}Fixedportionofthepre\det er\min edoverheadrate=\frac{Fixedoverhead}{Budgeteds\tan darddirectlaborhour}\\ Fixedportionofthepre\det er\min edoverheadrate=\frac{250,000}{25,000}=10\end{array}$

Budgeted variances is $4,000U and volume variances is $10,000F

Explanation of Solution

  $\begin{array}{l}Volume\mathrm{var}inace=\left[\begin{array}{l}(Fixedportionofpre\det er\min edoverheadrate)\times \\ (Budgeteds\tan darddirectlaborhour-s\tan dardhoursallowed)\end{array}\right]\\ Volume\mathrm{var}inace=10\times (25,000-26,000)\\ Volume\mathrm{var}inace=10,000F\end{array}$