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:

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 material cost would be included in the company’s planning 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 price 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 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?

13. What 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

answer:

1. Raw material cost to be included in planning budget: 25000*40 = $1000000

2. in flexible budget: 30000*40 = 1200000

3. material price variance = actual qty(std price- actual price)

= 160000(5-7.5)

= $400000 adverse

4. materail usage variance = std price(std qty - actual qty)

= 5(150000 - 160000)

= 50000 adverse

5. material price variance = 170000*-2.5

= 425000 adverse

6.material usage variance = 50000 adverse

7. direct labour cost in planning budget: 25000*28 = $700000

8. direct labour cost in flexible budget: 30000*28 = $840000

9. direct labour rate variance: actual hr(std rate - actual rate)

: 55000(14- 15)

: $55000 adverse

10. direct labour efficiency variance : std rate( std hr - actual hr)

: 14(60000 - 55000)

: $70000 favourable

11. labour sending variance is the labour rate variance.

12. variable manufacturing OH to be included in planning budget: 10*25000 = $250000

13. same as above

14. variable oh rate variance: actual hr worked(actual oh rate - std oh rate)

: 55000(5.1 - 5)

: 55000*.1 = $5500 adverse

15. varaible oh efficiency variance : std oh rate (actual hr - std hr)

: 5(55000 - 50000)

: 5*5000 = $25000 adverse

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