Answer:
A. Predetermined overhead rate = $10
B. Budgeted variance = $4,000 (Unfavorable)
C. Volume variance = $10,000 (Favorable)
Explanation:
Requirement A
We know,
Predetermined overhead rate = Total fixed overhead cost for the year ÷ Budgeted standard direct labor-hours
Given,
Total fixed overhead cost for the year = $250,000
Budgeted standard direct labor-hours = $25,000
Putting the values into the formula, we can get
Predetermined overhead rate = $250,000 ÷ $25,000
Or, Predetermined overhead rate = $10
Predetermined overhead rate = $10 per direct labor hour.
Comment: Generally, a Predetermined overhead rate is calculated with the help of direct labor hours.
Requirement B
We know,
Budgeted variance = actual fixed overhead cost for the year - budgeted fixed overhead cost for the year.
Given,
actual fixed overhead cost for the year = $254,000
budgeted fixed overhead cost for the year = $250,000
Budgeted variance = $254,000 - $250,000
Budgeted variance = $4,000 (Unfavorable)
As the actual fixed overhead cost for the year is higher than budgeted fixed overhead cost for the year, the situation is unfavorable.
Requirement C
We know,
Volume variance = Predetermined overhead rate × ( Standard direct labor hours - Budgeted direct labor-hours)
Given,
Predetermined overhead rate = $10 (From requirement A)
Standard direct labor hours = $26,000
Budgeted direct labor-hours = $25,000
Putting the values into the formula, we can get
Volume variance = $10 × ($26,000 - $25,000)
Or, Volume variance = $10 × $1,000
Volume variance = $10,000 (Favorable)
As Standard direct labor hours is higher than Budgeted direct labor-hours, the situation is favorable.
