The followng informaion apples to the questions displayed below) Preble Compeny
ID: 2511210 • Letter: T
Question
The followng informaion apples to the questions displayed below) Preble Compeny manufactures one product ts variable manufacturing overhead is appled to production based on direct lebor hours and ts standard cost card per unit is s folows Direct meterisis 5 pounds et 38 per pound Direct leber 4 hours et $15 per hour Veriable overheed 4 hours et $5 per hour Totnl stendard cost per unit s 40 60 20 s 120 The planning budget for March was based on producing and selling 21,000 unts However during March the compeny actualy produced and soid 24,000 units and incurred the following conts a Purchased 150.000 pounds of rew matenials o cost of $6.40 per pound A of b. Direct laborers worked 66,000 hours at e rate of $18 per hour materai wos used in production ? tal variable nonfacturrgove head for te moth was $40820Explanation / Answer
Solution:
Flexible budget is the budget prepared at standard cost but by taking the actual activity level achieved. It helps management to see the performance and compare the budgeted cost/revenue with the actual results.
8) Direct labor cost (flexible budget for March) = Actual Production 21,000 Units x Std Hours needed per unit 4 hours at $15 per hour
= $1,260,000
9)
Labor Rate Variance
Labor Price Variance – It arises due to difference in actual rate paid from standard rate. It is calculated as below:
Labor Price Variance = Actual Time (Standard Rate per hour – Actual Rate per hour)
Here, actual time means time for which wage has been paid.
Labor Rate Variance
Actual Hourly Rate (AHR)
$18.00
Per Hour
Standard Hourly Rate (SHR)
$15.00
Per Hour
Variance or Difference in Rate
$3.00
Per Hour
x Actual Labor Hours worked
66000
Hours
Labor Rate Variance
$198,000
Unfavorable
10)
Labor Quantity/Effieincy Variance
Labor Efficiency Variance – It arises due to variation in the working hours from the set standard.
Labor Quantity / Efficiency Variance
Standard Hours Allowed for actual production:
Actual Production
21000
Units
x Allowed Standard Hours Per Unit
4
hours
Total Standard Hours Allowed for actual production (SHAP)
84000
hours
Actual Labor Hours Worked (AH)
66000
hours
Variance or Difference in Hours
18000
hours
x Standard Hourly Rate (SHR)
$15.00
per hour
Labor Efficiency Variance
$270,000
Favorable
11) Labor Spending Variance = Labor Rate Variance $198,000 U + Labor Efficiency Variance $270,000 F
= $72,000 Favorable
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Labor Rate Variance
Actual Hourly Rate (AHR)
$18.00
Per Hour
Standard Hourly Rate (SHR)
$15.00
Per Hour
Variance or Difference in Rate
$3.00
Per Hour
x Actual Labor Hours worked
66000
Hours
Labor Rate Variance
$198,000
Unfavorable
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