Preble Company manufactures one product. Its variable manufacturing overhead is

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:

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

The planning budget for March was based on producing and selling 28,000 units. However, during March the company actually produced and sold 34,000 units and incurred the following costs:

Direct-laborers worked 69,000 hours at a rate of $15.00 per hour.

Total variable manufacturing overhead for the month was $565,110.

Total advertising, sales salaries and commissions, and shipping expenses were $345,000, $525,000, and $255,000, respectively.

11a. What is the variable overhead 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.). Input the amount as a positive value.)

11b.What amounts of advertising, sales salaries and commissions, and shipping expenses would be included in the company’s flexible budget for March?

11c. What is the spending variance related to advertising? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.). Input the amount as a positive value.)

11d. What is the spending variance related to sales salaries and commissions? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.). Input the amount as a positive value.)

11e. What is the spending variance related to shipping expenses? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.). Input the amount as a positive value.)

Direct material: 5 pounds at $9.00 per pound $ 45.00 Direct labor: 3 hours at $14 per hour 42.00 Variable overhead: 3 hours at $8 per hour 24.00 Total standard variable cost per unit $ 111.00

Explanation / Answer

11a) Variable overhead rate variance = (8*69000-565110) = 13110 U

11b) Amount in flexible budget:

Advertising = 340000

Sales salaries and commissions = (34000*26+380000) = 1264000

Shipping expense = 34000*17 = 578000

11c) Spending variance of advertising = 340000-345000 = 5000 U

11d) Spending variance of sales salaries and commission = 1264000-525000 = 739000 F

11e) Spending variance of shipping expense = 578000-255000 = 323000 U

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