Happy Valley Pet Products uses a standard costing system thatapplies overhead to products based on...

Happy Valley Pet Products uses a standard costing system that applies overhead to products based on standard direct labour-hours allowed for actual output of the period. During the recent year, the following data were collected:

Total budgeted fixed overhead cost for the year $ 40,000

Actual fixed overhead cost for the year $ 38,000

Budgeted standard direct labour-hours 10,000

Actual direct labour-hours 12,000

Standard direct labour-hours allowed for the actual output 9,000

Required:

1. Compute the fixed portion of the predetermined overhead rate for the year.

2. Compute the fixed overhead budget and volume variances

Solutions

Expert Solution

1. Predetermined Overhead Rate = Total budgeted fixed overhead cost / Total budgeted standard direct labour-hours;

* Predetermined Overhead Rate = $40,000 / 10,000 DLH;

*Predetermined Overhead Rate = $4.00 per DLH.

---------------------------------------------------------------------------------------

*Fixed overhead budget variance= Actual fixed overhead cost - Flexible budget fixed overhead cost;

*Fixed overhead budget variance= $38,000 - $40,000;

*Fixed overhead budget variance= $2,000 F

---------------------------------------------------------------------------------------

*Volume variance = Budgeted Fixed overhead cost - [Predetermined OH/Rate * Stnd DLH for actual output];

*Volume variance = $40,000 - [$4.00 * 9,000] = $40,000 - $36,000;

*Volume variance = $4,000 U.

ekkarill92 answered 2 years ago

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