Question

Analyze and rate the production job for Preble for the month of March (ie. great job, good job, average, poor job, etc) explain why.

Preble Company
Operating Data
For the Month Ended March 31
	Actual Results	Flexible Budget	Planning Budget
Units	32,000	32,000	35,000
Price [$/lbs]	$9.50	$9.50	$10
Quantity	245,000	255,000	224,000
Hours worked	102,400	102,400	96,000
Work rate[$/h]	$14.50	$14.50	$14
Variable manufacturing overhead	$580,000	$576,000	$630,000
Raw materials cost	$2,327,500	$2,240,000	$2,450,000
Labor cost	$1,484,800	$1,344,000	$1,470,000
	$4,392,300	$4,160,000	$4,550,000

Answer 1

Rating: Poor Job. The reasons are as follows:

a. Let us consider the quantity of materials required . As per the planning budget, it was 224,000 for 35,000 units or 6.4 per unit. If 32,000 units were actually produced and sold, the quantity required should have been 32,000 x 6.4 = 204,800. But the quantity actually used was way higher at 245,000, indicating very unfavorable materials quantity variance.

b. Let us now look at the hours worked. 35,000 units should have required 96,000 hours as per the planning budget. Therefore, 32,000 units should have used 32,000 / 35,000 x 96,000 = 87,771 hours. But the actual hours used to produce 32,000 units was way higher at 102,400, indicating very unfavorable labor efficiency variance.

Therefore, on the production front, it was a poor job.

The materials price variance are the responsibility of the purchase department.

The labor rate variance is the responsibility of the HR or recruitment department.