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 $11.00 per pound	$	55.00
Direct labor: 3 hours at $15.00 per hour		45.00
Variable overhead: 3 hours at $7.00 per hour		21.00
Total standard variable cost per unit	$	121.00

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

	Fixed Cost per Month			Variable Cost per Unit Sold
Advertising	$	280,000
Sales salaries and commissions	$	200,000		$	13.00
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 26,600 units and incurred the following costs:

a.	Purchased 154,000 pounds of raw materials at a cost of $9.50 per pound. All of this material was used in production.
b.	Direct-laborers worked 70,000 hours at a rate of $16.00 per hour.
c.	Total variable manufacturing overhead for the month was $510,930.
d.	Total advertising, sales salaries and commissions, and shipping expenses were $286,000, $511,000, and $123,000, respectively.

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

Preble Company
Flexible Budget
For the Month Ended March 31
Units sold (q)	26,600
Expenses:
Advertising
Sales salaries and commissions
Shipping expenses
Total	$0

What is the spending variance related to advertising?

What is the spending variance related to sales salaries and commissions?

What is the spending variance related to shipping expenses?

Answer 1

Preble Company
Flexible Budget
For the Month Ended March 31
Units sold (q)	26,600
Expenses:
Advertising	2,80,000	Fixed Expense
Sales salaries and commissions	5,45,800	Fixed Expense+13*26600(Variable Portion)
Shipping expenses	1,06,400	4*26600(Variable)
Total	9,32,200
	Flexible	Actual
Spending Variance:	Budgeted	Cost	Variance	Type
Advertising	2,80,000	286000	-6,000	Unfavourable
Sales salaries and commissions	5,45,800	511000	34,800	Favourable
Shipping expenses	1,06,400	123000	-16,600	Unfavourable