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 pounds at $8.00 per pound $ 40.00

Direct labor: 4 hours at $14.00 per hour 56.00

Variable overhead: 4 hours at $4.00 per hour 16.00

Total standard variable cost per unit $ 112.00

The company also established the following cost formulas for its selling expenses:

Fixed Cost per Month Variable Cost per Unit Sold

Advertising $ 310,000

Sales salaries and commissions $ 100,000 $ 12.00

Shipping expenses $ 5.00

The planning budget for March was based on producing and selling 21,000 units. However, during March the company actually produced and sold 24,000 units and incurred the following costs:

a. Purchased 150,000 pounds of raw materials at a cost of $6.40 per pound. All of this material was used in production.

b. Direct-laborers worked 87,000 hours at a rate of $15.00 per hour.

c. Total variable manufacturing overhead for the month was $350,500.

d. Total advertising, sales salaries and commissions, and shipping expenses were $320,000, $350,610, and $126,000, respectively.

5. If Preble had purchased 181,000 pounds of materials at $6.40 per pound and used 150,000 pounds in production, what would be the materials price variance for March? (Input the amount as a positive value. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.).)

Materials price variance $_____ U, F, or NONE

6. What direct labor cost would be included in the company’s flexible budget for March?

Direct labor cost $_____

7. What is the direct labor efficiency variance for March? (Input the amount as a positive value. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.).)

Labor efficiency variance $_____ U, F, or NONE

8. What is the direct labor rate variance for March? (Input the amount as a positive value. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.).)

Labor rate variance $_____ U, F, or NONE

Explanation / Answer

5) Materials price variance (actual price - standard price)* actual qty purchased (6.40 - 8)*181000 289600 F 6) direct labor cost in flexible budget actual production * standard cost per unit 24000*56 1344000 7) direct labor efficiency variance (actual hrs - standard hrs allowed)*standard rate (87,000 - 24000*4)*14 126,000 F 8) direct labor rate variance (actual rate - standard rate )*actual hrs (15 -14)*87000 87000 U

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