Question

# Preble Company manufactures one product. Its variable manufacturing overhead is applied to production based on direct...

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: 4 pounds at \$10.00 per pound \$40.00

Direct labor: 2 hours at \$13 per hour \$26.00

Variable overhead: 2 hours at \$9 per hour    \$18.00

Total standard variable cost per unit    \$84.00

The Company also established the following cot formulas for its selling expenses:

Fixed Cost per month / Variable cost per unit sold

Sales salaries and commisions \$180,000    / \$16.00

Shipping expenses / \$7.00

The planning budget for March was based on producing and selling 29,000 units. However, during March the company actually produced and sold 34,000 units and incurred the following costs:

a. Purchased 160,000 pounds of raw materials at a cost of \$8.50 per pound. All of this material was used in production.

b. Direct-laborers worked 59,000 hours at a rate of \$14.00 per hour.

c. Total variable manufacturing overhead for the month was \$564,040

d. Total Advertising, sales salaries and commisions, and shipping expenses were, \$245,000, \$475,000, and \$155,000 respectively.

Required:

4. If Preble had purchased 174,000 pounds of material at \$8.50 per pound and used 160,000 pounds in production, what would be the materials quantity variance for March?

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?

15. What is the spending variance related to shipping expenses ?

Solution 4:

Standard quantity of material for actual production = 34000*4 = 136000 pound

standard price of material = \$10 per pound

Actual quantity of material used = 160000 pound

Material quantity variance = (SQ - AQ) * SP = (136000 - 160000) * \$10 = \$240,000 U

Solution 9:

Variable manufacturing overhead to be included in the company flexible budget = Standard hours for actual production * Standard variable overhead rate

= (34000*2) * \$9 = \$612,000

Solution 10:

Standard hours for actual production = 34000*2 = 68000 hours

Standard rate of variable overhead = \$9 per hour

Actual hours = 59000 hours

Variable overhead efficiency variance = (SH - AH) * SR = (68000 - 59000) * \$9 = \$81,000 U

Solution 15:

Standard cost of shipping = 34000 * \$7 = \$238,000

Actual shipping cost = \$155,000

Spending variance related to shipping expenses = Budgeted cost - Actual cost

= \$238,000 - \$155,000 = \$83,000 F

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