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 material: 5 pounds at $10.00 per pound $ 50.00

Direct labor: 2 hours at $13.00 per hour 26.00

Variable overhead: 2 hours at $8.00 per hour 16.00

Total standard variable cost per unit $ 92.00

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

Fixed Cost per Month Variable Cost per Unit Sold

Advertising $ 400,000

Sales salaries and commissions $ 130,000 $ 11.00

Shipping expenses $ 3.00

The planning budget for March was based on producing and selling 32,000 units. However, during March the company actually produced and sold 37,600 units and incurred the following costs:

a. Purchased 200,000 pounds of raw materials at a cost of $9.40 per pound. All of this material was used in production.

b. Direct-laborers worked 65,000 hours at a rate of $14.00 per hour.

c. Total variable manufacturing overhead for the month was $525,000.

d. Total advertising, sales salaries and commissions, and shipping expenses were $416,000, $525,200, and $135,000, respectively.

5.

If Preble had purchased 210,000 pounds of materials at $9.40 per pound and used 200,000 pounds in production, what would be the materials price variance for March? (Input the amount as a positive value. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.).)

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

7.	What is the direct labor efficiency variance for March? (Input the amount as a positive value. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.).)

    

8.	What is the direct labor rate variance for March? (Input the amount as a positive value. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.).)

Answer 1

5)	material price variance
	(Actual price - standard price)*AQ purhcased
	(9.40 - 10)*210,000
	126000	F
6)	direct labor cost in flexible budget
	Actual units produced * direct labor cost per unit
	37,600*26
	977600
7)	Direct labor Efficiency variance
	(Actual hours - standard hours allowed)*standard rate
	(65000   - 37600*2)*13
	132600	F
8)	Direct labor rate variance
	(Actual rate- standard rate)*actual hours
	(14 - 13)*65000
	65000	U