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: 6 pounds at $8.00 per pound	$	48.00
Direct labor: 3 hours at $14 per hour		42.00
Variable overhead: 3 hours at $5 per hour		15.00
Total standard variable cost per unit	$	105.00

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

	Fixed Cost per Month				Variable Cost per Unit Sold
Advertising	$	250,000
Sales salaries and commissions	$	200,000			$	17.00
Shipping expenses					$	8.00

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:

1. Purchased 160,000 pounds of raw materials at a cost of $7.20 per pound. All of this material was used in production.

2. Direct-laborers worked 60,000 hours at a rate of $15.00 per hour.

3. Total variable manufacturing overhead for the month was $336,600.

4. Total advertising, sales salaries and commissions, and shipping expenses were $260,000, $480,000, and $165,000, respectively.

rev: 11_16_2018_QC_CS-146879

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

10. What is the variable overhead 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 the amount as a positive value.)

11. What is the variable overhead 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 the amount as a positive value.)

12. What amounts of advertising, sales salaries and commissions, and shipping expenses would be included in the company’s flexible budget for March?

Answer 1

9	Variable manufacturing overhead as per flexible budget=Actual units produced*Standard variable overhead per unit=24000*15=$ 360000
10	Variable overhead efficiency variance=Standard variable overhead rate*(Standard labor hours required-Actual labor hours worked)
	Standard variable overhead rate=$ 5 per hour
	Standard labor hours required=Actual units produced*Direct labor hours per unit=24000*3=72000
	Actual hours worked=60000 hours
	Variable overhead efficiency variance=5*(72000-60000)=60000=$ 60000 F
	(Actual hours worked is less than the standard hours required.Hence, variance is favorable)
11	Variable overhead rate variance=Actual hours worked*(Statndard variable overhead rate-Actual variable overhead rate)
	Actual hours worked=60000 hours
	Standard variable overhead rate=$ 5 per hour
	Actual variable overhead rate=Actual variable overhead cost/Actual hours=336600/60000=$ 5.61 per hour
	Variable overhead rate variance=60000*(5-5.61)=-36600=$ 36600 U
	(Actual variable overhead rate is more than standard variable overhead rate.Hence variance is unfavorable)
12	As per flexible budget (Based on 24000 units):
					$
	Advertising		250000+(24000*17)		658000
	Sales salaries and commissions				200000
	Shipping expenses			(24000*8)	192000