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.

1.

What raw materials cost would be included in the company’s flexible budget for March?

2.

What is the materials quantity 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.).)

3.

What is the materials price 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.).)

4.

If Preble had purchased 210,000 pounds of materials at $9 per pound and used 200,000 pounds in production, what would be the materials quantity 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.).)

Answer 1

1. Raw material cost to be included in the flexible budget for March = 32,000 x 5 x 10

= $1,600,000

2. Material quantity variance = Std. price (Std. quantity for actual output - Actual quantity)

= 10 (37,600 x 5 - 200,000)

= 10 (188,000 - 200,000 )

= 120,000 (U)

3. Material price variance = Actual quantity ( Standard price - Actual price )

= 200,000 ( 10 - 9.40 )

= 120,000 (F)

4. Material quantity variance = Std. price (Std. quantity for actual output - Actual quantity)

= 10 (37,600 x 5 - 200,000)

= 10 (188,000 - 200,000 )

= 120,000 (U)