Preble Company manufactures one product. Its variable manufacturing overhead is
ID: 2463192 • 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 planning budget for March was based on producing and selling 25,000 units. However, during March the company actually produced and sold 30,000 units and incurred the following costs:
Purchased 160,000 pounds of raw materials at a cost of $7.50 per pound. All of this material was used in production.
Direct laborers worked 55,000 hours at a rate of $15.00 per hour.
Total variable manufacturing overhead for the month was $280,500.
11.What is the labor spending variance for March?
12.What variable manufacturing overhead cost would be included in the company’s planning budget for March?
What variable manufacturing overhead cost would be included in the company’s flexible budget for March?
What is the variable overhead rate variance for March?
What is the variable overhead efficiency variance for March?
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:
Explanation / Answer
11.) Labor Spending Variance is the total of labor rate variance and labor efficiency variance.
Because we had a 55,000 unfavorable (essentially negative) and 70,000 favorable (positive),
we would take 70,000 fav. - 55,000 unfav.= 15,000 favorable.
12.) Variable Overhead= $10/ unit. The company plans on selling 25,000 units. 25,000 x 10= 250,000.
13.) Same as above but the company actually sells 30,000 units. 30,000 x 10= 300,000.
14.) Variable Overhead Rate Variance= (AH x AR) - (AH x SR)= (55,000 x 5.1) - (55,000 x 5)= 280,500- 275,000= 5,500 unfavorable. The actual cost was given to us in the problem --> 280,500. I found AR by dividing 280,500 by 55,000, which gives us 5.1. **This is unnecessary
15.) Variable Overhead Efficiency Rate= (AH x SR) - (SH x SR)= (55,000 x 5) - (60,000 x 5)= 275,000 - 300,000= 25,000 favorable
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