Preble Company manufactures one product. Its variable manufacturing overhead is
ID: 2472508 • 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:
Direct Material: 5 lbs. @ 8.00 per pound- $40
Direct Labor: 2 hours @ 14 per hour- $28
Variable Overhead: 2 hours @ 5 per hour- $10
Total Standard Variable cost per Unit- $78
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 cost:
A. Purchased 160,000 pounds of raw materials at a cost of $7.50 per pound. All of this material was used in production.
B. Direct laborers worked 55,000 hours at a rate of $15 per hour.
C. Total variable manufacturing overhead for the month was $280,500.
D. Total advertising, salaries & commissions and shipping expenses were $210,000 $455,000 and $115,000, respectively.
Required: PLEASE SHOW WORK
1. What raw materials cost would be included in the company’s flexible budget for March?
2. What raw materials costs would be included in the company’s flexible budget for March?
3. What is the materials price variance for March?
4. What is the materials quantity variance for March?
5. If Preble had purchased 170,000 pounds of materials at $7.50 per pound and used 160,000 pounds in production, what would be the materials quantity variance for March?
6. If Preble had purchased 170,000 pounds of materials at $7.50 per pound and used 160,000 pounds in production, what would be the materials quantity variance for March?
7. What direct labor cost would be included in the company’s planning budget for March?
8. What is the direct labor efficiency variance for March? Indicate the Effect as Favorable, Unfavorable, or None.
8. What direct labor cost would be included in the company’s flexible budget for March?
9. What is the labor rate variance for March?
10. What is the labor efficiency variance for March?
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?
13What variable manufacturing overhead cost would be included in the company’s planning budget for March?
14. What is the variable overhead rate variance for March?
15. What is the variable overhead efficiency variance for March?
Note: All supporting calculations need to be provided
Explanation / Answer
Solution:
1) The raw material cost would be included in the company’s flexible budget for March = $1,200,000
Flexible Budget is prepared on the basis of Actual Result at standard cost.
Actual Produced and Sold Units = 30,000 Units
Standard Quantity of Raw Material for actual production = Actual Production x Standard Raw Material Requirement per unit =30,000 x 5 lbs = 150,000 lbs
The amount of raw material = 150,000 lbs x $8 = $1,200,000
2. What raw materials costs would be included in the company’s flexible budget for March?
Same as first part, the answer will be same = $1,200,000
3. What is the materials price variance for March?
Material Price Variance = Actual Quantity Purchased (Standard Price – Actual Price) = 160,000 ($8 - $7.50) = $80,000 Favorable
4. What is the materials quantity variance for March?
Material Quantity Variance = Standard Price (Standard Quantity for Actual Production – Actual Quantity Used)
Standard Quantity for Actual Production = As calculated in part 1 = 150,000 lbs
= $10 (150,000 – 160,000)
= $100,000 Unfavorable
5. If Preble had purchased 170,000 pounds of materials at $7.50 per pound and used 160,000 pounds in production, what would be the materials quantity variance for March?
In Material Quantity Variance, actual quantity means actual quantity of material USED.
Material Quantity Variance = Standard Price (Standard Quantity for actual production – Actual Quantity Used)
= $10 (150,000 – 160,000)
= $100,000 Unfavorable
Please ask separate question for rest parts
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