Preble Company manufactures one product. Its variable manufacturing overhead is
ID: 2552882 • 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:
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.
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? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.). Do not round intermediate calculations.)
What direct labor cost would be included in the company’s planning budget for March?
What direct labor cost would be included in the company’s flexible budget for March?
What is the labor rate variance for March? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.). Do not round intermediate calculations.)
What is the labor efficiency variance for March? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.). Do not round intermediate calculations.)
What is the labor spending variance for March? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.). Do not round intermediate calculations.)
What variable manufacturing overhead cost would be included in the company’s planning budget for March?
What variable manufacturing overhead cost would be included in the company’s flexible budget for March?
What is the variable overhead rate variance for March? (Round the actual overhead rate to two decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.).)
What is the variable overhead efficiency variance for March? (Do not round intermediate calculations. Round the actual overhead rate to two decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.).)
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:
Explanation / Answer
6. Material Quantity Variance:-
Direct materials quantity variance = SP x (SQ – AQ)
SP - $ 8
SQ- 160,000 pounds
AQ – 182,000 pounds
Thus, Direct Material Quantity Variance = 8 * (160,000 – 182,000)
= -176,000 (Unfavourable)
7. Direct Labour Cost in Planning Budget is based on budgeted units:-
Direct Labour hours / Unit – 2 hours
Budgeted rate - $ 16
Budgeted Units – 32,000
Thus, budgeted Direct Labour Cost – 32,000Units * 2Hours * $16 = $1,024,000.
8. Direct Labour cost in Flexible Planning Budget would be based on actual units:-
Direct Labour hours / Unit – 2 hours
Actual rate - $ 17
Actual Units – 37,000
Thus, budgeted Direct Labour Cost – 37,000Units * 2Hours * $17 = $1,258,000.
9. Labour Rate Variance = (Actual Rate – Standard Rate) * Actual Hours worked
Actual Rate - $17
Standard rate - $ 16
Actual Hours Worked – Actual Units * Direct Labour hours / Unit = 37,000* 2 = 74,000
Labour Rate Variance = (17-16) * 74,000 = 74,000 (Unfavorable)
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