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 $8.00 per pound	$	40.00
Direct labor: 3 hours at $17.00 per hour		51.00
Variable overhead: 3 hours at $9.00 per hour		27.00
Total standard variable cost per unit	$	118.00

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

	Fixed Cost per Month			Variable Cost per Unit Sold
Advertising	$	350,000
Sales salaries and commissions	$	250,000		$	16.00
Shipping expenses				$	4.00

The planning budget for March was based on producing and selling 21,000 units. However, during March the company actually produced and sold 26,000 units and incurred the following costs:

a.	Purchased 160,000 pounds of raw materials at a cost of $6.50 per pound. All of this material was used in production.
b.	Direct-laborers worked 68,000 hours at a rate of $19.00 per hour.
c.	Total variable manufacturing overhead for the month was $655,200.
d.	Total advertising, sales salaries and commissions, and shipping expenses were $364,000, $655,520, and $130,000, respectively.

3a. 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.).)

3b. What amounts of advertising, sales salaries and commissions, and shipping expenses would be included in the company’s flexible budget for March?

3c. What is the spending variance related to advertising? (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.).)

3d. What is the spending variance related to sales salaries and commissions? (Input the amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.).)

3e. What is the spending variance related to shipping expenses? (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

3a
Variable overhead rate variance for March = 655200-(68000*9)= $43200 U
b
Advertising = 350000
Sales salaries and commissions = 250000+(26000*16)= $666000
Shipping expenses = 26000*4= $104000
c
Spending variance related to advertising = 364000-350000 = $14000 U
d
Spending variance related to sales salaries and commissions = 655520-666000= $10480 F
e
Spending variance related to shipping expenses = 130000-104000 = $26000 U