Question

Total budgeted fixed overhead cost for the year $ 250,000 Actual fixed overhead cost for the year $ 254,000 Budgeted direct labor-hours (denominator level of activity) 25,000 Actual direct labor-hours 27,000 Standard direct labor-hours allowed for the actual output 26,000 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.)

Answer 1

Answer:

1. $10

2. The fixed overhead budget variance and volume variance is $4,000 unfavorable and $10,000 favorable respectively

Explanation:

1. The computation of the predetermined overhead rate for the year is shown below:

Predetermined overhead rate = (Total estimated  budgeting fixed manufacturing overhead) ÷ (estimated direct labor-hours)

= $250,000 ÷ 25,000 hours

= $10

2. The computation of the fixed overhead budget variance and volume variance is shown below:

Fixed overhead budget variance = Actual fixed overhead cost for the year - Total budgeted fixed overhead cost for the year

= $254,000 - $250,000

= $4,000 unfavorable

Volume variance = (Budgeted direct labor hours - standard direct labor hours) ×  predetermined overhead rate

= (25,000 hours - 26,000 hours) × $10

= $10,000 favorable