The following information applies to the questions displayed below.] Preble Comp

Question

The following information applies to the questions displayed below.] Preble Company manufactures one product. lts variable manufacturing overhead is applied to production based on direct labor-hours and its standard cost card per unit is as follows: Direct materials: 6 pounds at $8 per pound Direct labor: 4 hours at $17 per hour Variable overhead: 4 hours at $4 per hour Total standard cost per unit $ 48 68 16 $132 The planning budget for March was based on producing and selling 19,000 units. However, during March the company actually produced and sold 24,000 units and incurred the following costs: a. Purchased 160,000 pounds of raw materials at a cost of $7.20 per pound. All of this material was used in production. b. Direct laborers worked 72,000 hours at a rate of $18 per hour. c. Total variable manufacturing overhead for the month was $336,960

Explanation / Answer

1. Raw material cost to be included in Planning budget is as follows

Direct Material for budget = 24,000 units x 6 pounds x $ 8 = $ 1,152,000

3. Material Price Variance = Actual quantity purchased x ( Standard price – Actual Price)

Where,

Actual quantity consumed = 160,000 pounds

Standard Price per pound = $ 8

Standard Price per pound = $ 7.20

Hence Material Price Variance = 160,000 ($ 8 - $ 7.20)

  =$ 128,000 (F)

5. If actual quantity purchased was 187,000 pounds, then Material price variance is as follows

Material Price Variance = 187,000 ($ 8 - $ 7.20)

  =$ 149,600 (F)

7. Direct labour cost to be included in the Planning budget is as follows

Direct labour cost for budget = 72,000 hours x $ 17 per hour = $ 1,224,000

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