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.

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

10.

What is the variable overhead 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.).)

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

12.	What amounts of advertising, sales salaries and commissions, and shipping expenses would be included in the company’s flexible budget for March?

        

Answer 1

9)	Variable manufacturing included in company's flexible budget
	actual output * standard cost per unit
	37600*16
	601600
10)	Variable overhead efficiency variance
	(actual hours - standard hours allowed)*standard rate
	(65000 -	37600*2) * 8
	81600	F
11)	Variable overhead rate variance
	(actual rate - standard rate)*actual hours
	(525000   - 8*65000)
	5000	U
12)	Advertising,Sales salaries and commissionand shipping expense
						flexible budget
				variable	Fixed	total
	Advertising			0	400,000	400000
	Sales,salaries &comm(37600*11)			413600	130,000	543600
	Shipping expense (37600*3)			112800	0	112800