Required information [The following information applies to the questions display

Question

Required information [The following information applies to the questions displayed below 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 materials: 8 pounds at $10 per pound Direct labor: 5 hours at $13 per hour Variable overhead: 5 hours at $8 per hour 40 Total standard cost per unit 80 65 $185 The planning budget for March was based on producing and selling 15,000 units. However, during March the company actually produced and sold 17,000 units and incurred the following costs a. Purchased 170,000 pounds of raw materials at a cost of $8.00 per pound. All of this material was used in production. b. Direct laborers worked 64,000 hours at a rate of $14 per hour. c. Total variable manufacturing overhead for the month was $513,920 Required: 1. What raw materials cost would be included in the company's planning budget for March? material cost

Explanation / Answer

1. Raw material cost included in Planning budget = 15000 units*$80

=$1200000

2. Raw material cost included in Flexible budget = 17000 units*$80

= $1360000

3. Material Price variance =(Actual Unit cost- Standard Unit Cost)* Actual Quantity Purchased

=($8-$10)*170000 pounds

=$340000 Favorable

4. Material Quantity Variance = Standard Price (Standard Quantity - Actual Quantity)

= $10(136000-170000)

= $340000 Unfavorable

5. Material Price variance in this case = (Actual quantity * Actual price) - (Actual quantity * Standard Price)

= (179000*8)-(179000*10)

= $358000 Favorable

6.Material Quantityvariance in this case =(Standard materials used- Actual usage)* Standard Price

= (136000-170000)*10

=$340000 unfavorable

7.Direct Labor cost(Planned) =15000*65 = $975000

8.Direct Labor cost(Flexible)= 17000*65 = $1105000

9.Labor rate Variance = Actual hours(Actual rate- Standard Rate)

=64000(14-13)

$64000 unfavorable

10. Labor Efficiency Variance = Standard rate(Actual Hours- Standard Hours)

= $13(64000-85000)

= $273000 favorable

11. Labor Spending Variance= Total of Labor spending and Labor rate variances = 273000-64000 = $209000 favorable.

12.Variable manufacturing overhead cost(Plannng)=15000*40 = $600000

13.Variable manufacturing overhead cost(Flexible) = 17000*40 = $680000

14.Variable Overhead rate variance = (Actual hours*Actual rate)-(Actual Hrs*Standard Rate)

   =(64000*513920/64000)-(64000*8)

   = $513920-$512000

=$ 1920 Unfavorable

15. Variable overhead Efficiency Rate= (Actual Hours-Standard Hours)*Standard Rate

   =(64000-85000)*8

   = $168000 Favorable

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