[The following information applies to the questions displayed below Preble Compa

Question

[The following information applies to the questions displayed below 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: 6 pounds at $9.00 per pound $ 54.00 Direct labor: 5 hours at $13.00 per hour Varlable overhead: 5 hours at $3.00 per hour 65.00 5.00 Total standard variable cost per unit $134.00 The company also established the following cost formulas for its selling expenses Fixed Cost per Month $260,000 s120,000 Varlable Cost per Unit Sold Advertising Sales salaries and commissions Shipping expenses $ 11.00 S 400 The planning budget for March was based on producing and selling 20,000 units. However, during March the company actually produced and sold 25,000 units and Incurred the following costs: a. Purchased 180,000 pounds of raw materials at a cost of $7.50 per pound. All of this material was used In production. b. Direct-laborers worked 115,000 hours at a rate of $14.00 per hour. c. Total variable manufacturing overhead for the month was $350,250 d. Total advertising, sales salaries and commissions, and shipping expenses were $267.000, $350,750, and $105,000, respectively

Explanation / Answer

Ans. 11) Variable overhead Rate variance = (SR per hour-Actual Rate per hour)X Actual hours

Actual Rate per hour = 350250/ 115000 = $3.05 per hour

Standared Rate per labour hour = $3

Actual labour hours = 115000

Variable overhead rate variance (3-3.05)X115000 = $5750 (UF)

Ans. 12 )

                    Flexible Budget amt of for Advertising and sales salary and commissiono

                                     and Sipping expenses for the month of March

Unit Sold                                                                     25000

Expenses:

Advertising as fixed original budget       260000

Variable Sales Salaries and commission (11X25000)     275000

Fixed Sales salaries and commission                                     120000

Shipping expenses (4X25000)                  100000

Total cost       755000                                                 

Ans 13.)

Calculation of Spending Variance related to Advertising

Budgeted Advertising Cost $260000

Actual Advertising Cost       $267000

Spending Variance (260000-267000) = 7000 (UF)

Note: F= Favourable variance

UF= Unfavourable variance

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