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 37,000 units and incurred the following costs:

Purchased 160,000 pounds of raw materials at a cost of $7.40 per pound. All of this material was used in production.

Direct laborers worked 67,000 hours at a rate of $17 per hour.

Total variable manufacturing overhead for the month was $422,100.

5) If Preble had purchased 182,000 pounds of materials at $7.40 per pound and used 160,000 pounds in production, what would be the materials price variance for March?

6) If Preble had purchased 182,000 pounds of materials at $7.40 per pound and used 160,000 pounds in production, what would be the materials quantity variance for March?

10)What is the labor efficiency variance for March?

11)What is the labor spending variance for March?

  Direct materials: 4 pounds at $8 per pound $ 32          Direct labor: 2 hours at $16 per hour 32          Variable overhead: 2 hours at $6 per hour 12          Total standard cost per unit $ 76       

Explanation / Answer

Solution:

5)

Actual Material Purchased Quantity during march month = 182,000 Pounds @ $7.40 per pound

Material price variance measures variances arises in the material cost due to difference in actual material purchase price from standard material price. The actual quantity purchased is used to calculate Material Price Variance.

Material Price Variance = Actual Quantity Purchased (Standard Price – Actual Price) = 182,000 ($8 - $7.40) = $109,200 F

6)

Actual material used quantity during March month = 160,000 Pounds

Material Quantity Variance measures variance in material cost due to usage of materials. The actual quantity consumed is used to calculate material quantity variance.

Standard Quantity for actual production = Actual Production x Standard Quantity per unit = 37,000 Units x 4 Pounds per unit = 148,000 Pounds

Material Quantity Variance = Standard Price (Standard Quantity for actual production – Actual Quantity Used)

= $8 (148,000 – 160,000) = $96,000 U

10)

Labor Efficiency Variance arises due to deviation in the working hours from the set standard.

Actual Hours Worked during March = 67,000 Hours @ $17 per hour

Standard Hours for Actual Output = Actual Output x Standard Direct Labor Hour per unit = 37,000 Units x 2 hours per unit = 74,000 Hours

Labor Efficiency Variance = Standard Rate (Standard Hours for Actual Output – Actual Hours Worked)

= $16 (74,000 – 67,000) = $112,000 F

11)

Labor Spending Variance is the difference between actual labor cost and standard cost.

Labor Spending Variance = (Standard Hours for Actual Output x Standard Rate per hour) – (Actual Hours x Actual Rate Per Hour)

= (74,000 x $16) – (67,000 x $17) = $1,184,000 - $1,139,000 = $45,000 F

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