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 materials: 4 pounds at $10 per pound	$	40
Direct labor: 2 hours at $13 per hour		26
Variable overhead: 2 hours at $9 per hour		18
Total standard cost per unit	$	84

The planning budget for March was based on producing and selling 29,000 units. However, during March the company actually produced and sold 34,000 units and incurred the following costs:

1. Purchased 160,000 pounds of raw materials at a cost of $8.50 per pound. All of this material was used in production.

2. Direct laborers worked 59,000 hours at a rate of $14 per hour.

3. Total variable manufacturing overhead for the month was $564,040.

_________________

9. 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.). Input all amounts as positive values.)

10. 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.). Input all amounts as positive values.)

11. 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.). Input all amounts as positive values.)

12. What variable manufacturing overhead cost would be included in the company’s planning budget for March?

Answer 1

• Requirement 9

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                     13.00	-	$                    14.00	)	x	59000
	-59000
	Variance		$            59,000.00			Unfavourable-U

• Requirement 10

Labour Efficiency Variance
(	Standard Hours = 34000 units x 2 hrs	-	Actual Hours	)	x	Standard Rate
(	68000	-	59000	)	x	$                        13.00
	117000
	Variance		$          117,000.00			Favourable-F

• Requirement 11

Labor Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$           884,000.00	-	$          826,000.00	)
	58000
	Variance		$            58,000.00			Favourable-F

• Requirement 12

Variable manufacturing Overhead to be included in Planning Budget would be = 29000 planned units x $ 18 = $ 522,000

Answer = $ 522,000