Question

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Preble Company manufactures one product. Its variable manufacturing overhead is applied to production based on direct labor-hours and its standard cost card per unit is as follows:

Direct material: 5 pounds at $9.00 per pound	$	45.00
Direct labor: 3 hours at $14 per hour		42.00
Variable overhead: 3 hours at $9 per hour		27.00
Total standard variable cost per unit	$	114.00

The company also established the following cost formulas for its selling expenses:

	Fixed Cost per Month				Variable Cost per Unit Sold
Advertising	$	300,000
Sales salaries and commissions	$	300,000			$	22.00
Shipping expenses					$	13.00

The planning budget for March was based on producing and selling 20,000 units. However, during March the company actually produced and sold 24,800 units and incurred the following costs:

1. Purchased 155,000 pounds of raw materials at a cost of $7.20 per pound. All of this material was used in production.

2. Direct-laborers worked 65,000 hours at a rate of $15.00 per hour.

3. Total variable manufacturing overhead for the month was $612,300.

4. Total advertising, sales salaries and commissions, and shipping expenses were $303,000, $505,000, and $215,000, respectively.

Required:

13. What is the spending variance related to advertising? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.). Input the amount as a positive value.)

14. What is the spending variance related to sales salaries and commissions? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.). Input the amount as a positive value.)

15. What is the spending variance related to shipping expenses? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.). Input the amount as a positive value.)

Answer 1

13
Amount of advertising flexible budget	300000
Spending variance related to advertising	3000	U	=303000-300000
14
Sales salaries and commissions in flexible budget	845600		=300000+(24800*22)
Spending variance related to sales salaries and commissions	340600	F	=845600-505000
15
Shipping expenses in flexible budget	322400		=24800*13
Spending variance related to shipping expenses	107400	F	=322400-215000