Question

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 materials: 5 pounds at $8.00 per pound	$	40.00
Direct labor: 2 hours at $14 per hour		28.00
Variable overhead: 2 hours at $5 per hour		10.00
Total standard cost per unit	$	78.00

The planning budget for March was based on producing and selling 25,000 units. However, during March the company actually produced and sold 30,000 units and incurred the following costs:

Purchased 160,000 pounds of raw materials at a cost of $7.50 per pound. All of this material was used in production.

Direct laborers worked 55,000 hours at a rate of $15.00 per hour.

Total variable manufacturing overhead for the month was $280,500.

7. What direct labor cost would be included in the company’s planning budget for March?

Direct labor cost    

8.What direct labor cost would be included in the company’s flexible budget for March?

Direct labor cost    

9.What is the labor rate variance for March? (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.)

Labor rate variance

10. What is the labor efficiency variance for March? (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.)

Labor efficiency variance

11. What is the labor spending variance for March? (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.)

Labor spending variance

12. What variable manufacturing overhead cost would be included in the company’s planning budget for March?

Variable manufacturing overhead cost

13. What variable manufacturing overhead cost would be included in the company’s flexible budget for March?

Variable manufacturing overhead cost

14. What is the variable overhead rate variance for March? (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.)

Variable overhead rate variance

15. What is the variable overhead efficiency variance for March? (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. Do not round intermediate calculations.)

Variable overhead efficiency variance    

Answer 1

7
Direct labor cost planning budget = 25000*28= $700000
8
Direct labor cost flexible budget = 30000*28= $840000
9
Labor rate variance = 55000*(15-14) = $55000 U
10
Labor efficiency variance = 14*(55000-30000*2)= $70000 F
11
Labor spending variance = (55000*15)-(30000*28)= $15000 F
12
Variable manufacturing overhead cost = 25000*10 = $250000
13
Variable manufacturing overhead cost = 30000*10 = $300000
14
Variable overhead rate variance = 280500-(55000*5)= $5500 U
15
Variable overhead efficiency variance = 5*(55000-30000*2)= $25000 F