The following information applies to the questions displayed below, Preble Compa
ID: 2413423 • Letter: T
Question
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: 6 pounds at $8 per pound Direct labor: 3 hours at $14 per hour Variable overhead: 3 hours at $5 perh $ 48 42 15 Total standard cost per unit $105 The planning budget for March was based on producing and selling 19,000 units. However, during March the company actually produced and sold 24,000 units and incurred the following costs: a. Purchased 160,000 pounds of raw materials at a cost of $7.20 per pound. All of this material was used in production. b. Direct laborers worked 60,000 hours at a rate of $15 per hour. Total variable manufacturing overhead for the month was $336,600Explanation / Answer
Ans.1. Raw Material cost to be included in the planning budget is as follows:
Budgeted Units= 19000 units
Raw Material reuired Per unit= 6 pounds @ $8
Raw Material Cost= 19000*6*8 = $912,000
Ans.2. Raw Material Cost to be included in flexible budget
Actual Units Produced= 24000
Raw Material Cost = 24000*6*8 = $1,152,000
Ans. 3.:
Material Price Variance = (Actual Price- Standand Price)* Actual Quantity Purchased
Actual Price = $7.20
Standard Price = $ 8
Raw Material Purchased= 160,000 pounds
Raw Material Price Variance= ( $7.20 - $8) 160,000
= $ 128,000 Favourable
Ans. 4.
Material Quantity Variance = ( SQ - AQ ) x SP
where: SQ: Standad Quantity, AQ: Actual Quantity of Direct Material Used And SP: Standard Price per unit of Direct Material
Standard Quantity = 24000*6 = 144000 pounds
Actual Quantity = 160000 pounds
Standad Price = $ 8
Material Quantity Variance= (144000-160000)*8 = $ 128000 Unfavouable
Ans. 5.
Material Price Variance if 175000 pounds Raw Material was purchased:
MPV = (AP-SP)* AQ
where AP: Actual Price , SP: Standard Price and AQ= Actual quantity purchased
MPV = ( $7.20 - $8 )* 175000 = $ 140,000 Favourable
Ans. 6.
Material Quantity Variance if 175000 pounds Raw Material was purchased and 160000 pounds were consumed:
Material Quantity Variance = ( SQ - AQ ) x SP
where: SQ: Standad Quantity, AQ: Actual Quantity of Direct Material Used And SP: Standard Price per unit of Direct Material
Standard Quantity = 24000*6 = 144000 pounds
Actual Quantity = 160000 pounds
Standad Price = $ 8
Material Quantity Variance= (144000-160000)*8 = $ 128000 Unfavouable
Ans. 7.
Direct Labour Cost to be included in planning budget = planned units * Standard labour cost per unit
= 19000*42 = $ 798,000
Ans.8.Direct Labour Cost to be included in Flexible Budget = Actual Units Produced * Standard Labour Cost p.u.
= 24000*42 = $ 1,008,000
Ans.9. Direct Labour Rate Variance = ( SR - AR )* AH
Where SR: Standard Rate. AR: Actual Rate, AH: Actual Direct Labour Hours Worked
DLRV = ( $14 - $15 ) * 60000 = $60,000 Unfavourable.
Ans. 10.
Labour Efficiency Variance = ( SH - AH )* SR
where SH: standard direct labor hours allowed, AH : actual direct labor hours used
SR: standard direct labor rate per hour
SH = 24000*3 = 72000 hours; AH = 60000 hours; SR= $14 per hour
LEV = (72000-60000) * 14 = $168,000 Favourable.
Ans. 11.
Labour Spending Variance:
Ans. 12
Variable Manufacturing Overhead cost to be included in planning budget =
Planned Production * Standard overhead cost per unit
= 19000 * 15 = $ 285,000
Ans .13. Variable Manufacturing Overhead cost to be included in flexible budget =
Actual Production * Standard Cost per unit
=24000 * 15 = $ 360,000
Direct Labour Rate Variance = ( SR - AR )* AH
Where SR: Standard Rate. AR: Actual Rate, AH: Actual Direct Labour Hours Worked
DLRV = ( $14 - $15 ) * 60000 = $60,000 Unfavourable
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