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 $9 per pound	$	45
Direct labor: 3 hours at $14 per hour		42
Variable overhead: 3 hours at $9 per hour		27
Total standard cost per unit	$	114

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:

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

Direct laborers worked 65,000 hours at a rate of $15 per hour.

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

1. What direct labor cost would be included in the company’s planning budget for March? and in the Flexible budget also for March?

2. What is the labor rate variance for March? and the labor efficiency variance for March? and the labor spending variance for March?

3. What variable manufacturing overhead cost would be included in the company’s planning budget for March? and in the company’s flexible budget also for March?

4. What is the variable overhead rate variance for March? and the variable overhead efficiency variance for March?

Thank you

Answer 1

1) direct labour cost in planning budget = 20000*42 = 840000

2) Labour rate variance = (14-15)*65000 = 65000 U

Labour efficiency variance = (24800*3-65000)*14 = 131600 F

Labour spending variance = (24800*42)-(65000*15) = 66600 F

3) Variable manufacturing overhead in planning budget = 20000*27 = 540000

4) Variable overhead rate variance = (9*65000-612300) = 27300 U

Variable overhead efficiency variance = (24800*3-65000)*9 = 84600 F

Variable overhead spending variance = (24800*27)-612300 = 57300 F