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: 4 pounds at $8 per pound	$	32
Direct labor: 2 hours at $16 per hour		32
Variable overhead: 2 hours at $6 per hour		12
Total standard cost per unit	$	76

  

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

a.	Purchased 160,000 pounds of raw materials at a cost of $7.40 per pound. All of this material was used in production.
b.	Direct laborers worked 67,000 hours at a rate of $17 per hour.
c.	Total variable manufacturing overhead for the month was $422,100.

6.

If Preble had purchased 182,000 pounds of materials at $7.40 per pound and used 160,000 pounds in production, what would be the materials quantity 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.). Do not round intermediate calculations.)

7.

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

8.

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

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.). Do not round intermediate calculations.)

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.). Do not round intermediate calculations.)

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.). Do not round intermediate calculations.)

12.

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

13.

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

14.

What is the variable overhead rate variance for March? (Round the actual overhead rate to two decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.).)

15.	What is the variable overhead efficiency variance for March? (Do not round intermediate calculations. Round the actual overhead rate to two decimal places. 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

Solution 6:

Material quantity variance = (SQ - AQ) * SP = (37000*4 - 160000) * $8 = $96,000 U

Solution 7:

direct labor cost would be included in the company’s planning budget for March = Budgeted labor hours * standard rate of labor

= (32000*2) * $16

= $1,024,000

Solution 8:

direct labor cost would be included in the company’s flexible budget for March = Standard hours * SR = (37000*2) * $16 = $1,184,000

Solution 9:

labor rate variance for March = (SR - AR) * AH = ($16 - $17) * 67000 = $67,000 U

Solution 10:

labor efficiency variance for March = (SH - AH) * SR = (37000*2 - 67000) * $16 = $112,000 F

Solution 11:

labor spending variance for March = Labor rate variance + Labor efficiency variance = $67,000 U + $112,000 F

= $45,000 F

Solution 12:

variable manufacturing overhead cost would be included in the company’s planning budget for March =

Budgeted labor hours * standard rate of labor = (32000*2) * $6 = $384,000

Solution 13:

variable manufacturing overhead cost would be included in the company’s flexible budget for March = SH* SR = (37000*2)* $6

= $444,000

Solution 14:

variable overhead rate variance for March = (SR - AR) * AH = ($6 - $422,100 / 67000) * 67000 = $20,100 U

Solution 15:

variable overhead efficiency variance for March = (SH - AH) * SR = (37000*2 - 67000) * $6 = $42,000 F