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 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:

Purchased 200,000 pounds of raw materials at a cost of $9.40 per pound. All of this material was used in production.

Direct laborers worked 75,000 hours at a rate of $16 per hour.

  Direct materials: 5 pounds at $10 per pound $ 50          Direct labor: 2 hours at $15 per hour 30          Variable overhead: 2 hours at $5 per hour 10          Total standard cost per unit $ 90       

Explanation / Answer

9 )Rate variance = AH(AR *SR)

                  = 75000 ( 16 - 15)

                   = 75000 U

10)Labor efficiency variance = SR (AH-SH)

                            = 15 [75000 -   (37600 * 2)]

                           = 15 [75000 - 75200]

                           = 15 * -200

                          = - 3000 F

11) Labor spending variance = 75000 - 3000 = 72000U

12)Variable manufacturing voerhead in planning budget = 32000 *10 =$ 320,000

13) Variable overhead cost in flexible budget = 37600 * 10 = $ 376000

14) Variable overhead rate variance = AH * AR -     AH* SR

                                       = 558750 - (5 *75000)

                                       = 558750 - 375000

                                     = 183750 U

15)Efficiency variance = SR (AH-SH)

                          = 5 [75000-   (37600 * 2)]

                          = 5[75000 - 75200]

                        = 5*-200

                       = - 1000 F

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