Preble Company manufactures one product. Its variable manufacturing overhead is
ID: 2424920 • Letter: P
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 24,000 units. However, during March the company actually produced and sold 30,600 units and incurred the following costs:
Purchased 170,000 pounds of raw materials at a cost of $9.00 per pound. All of this material was used in production.
Total advertising, sales salaries and commissions, and shipping expenses were $337,000, $505,120, and $128,000, respectively.
What is the variable overhead efficiency 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.).)
What is the variable overhead rate variance for March? (Do not round intermediate calculations. 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.).)
Direct material: 5 pounds at $10.00 per pound $ 50.00 Direct labor: 3 hours at $17.00 per hour 51.00 Variable overhead: 3 hours at $6.00 per hour 18.00 Total standard variable cost per unit $ 119.00Explanation / Answer
Preble Company Expense Variance statement for units produced and sold 30600 Units (Month-March) Particulars Budgeted Actual Variance Variance Rate Per Unit Total In $ In $ In $ In $ Direct Material 10 17,00,000.00 15,30,000.00 1,70,000.00 Favourable Direct Labour 17 13,94,000.00 14,76,000.00 -82,000.00 UnFavourable Variable Overhead 6 4,92,000.00 5,05,000.00 -13,000.00 UnFavourable Advertising 3,30,000.00 3,37,000.00 -7,000.00 UnFavourable Sales Salaries & Commission - Fixed 1,30,000.00 - Variable 15 4,59,000.00 Total 5,89,000.00 5,05,120.00 83,880.00 Favourable Shipping Expenses 4 1,22,400.00 1,28,000.00 -5,600.00 UnFavourable Answer 1 Variable overhead efficiency variance = Standard overhead rate per hour * (Standard Hours- Actual Hours) Standard Variable cost per unit = $119 Per unit requires 3 hours of direct labour Hence Standard Variable cost per hour = $119 / 3 hors = $39.67 Actual Direct Labour hours = 82000 hours Standard Direct Labour Hours = 3 hours * 30600 Units = 91800 hours Variable overhead efficiency variance = $39.67 * (91800-82000) Variable overhead efficiency variance = $388766 The positive value indicates that variance is favourable. Answer 2 Variable overhead rate variance = (Standard variable overhead rate-actual variable overhead rate)*Actual labour hours Standard Variable overhead rate = $119 / 3 hours = $39.67 Actual Variable overhead rate = Actual Overhead cost / Actual Direct Labour Hours = $505000 / 82000 hours = $6.16 Variable overhead rate variance = (39.67-6.16)*82000 = $27,47,820
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