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 $15 per hour		60.00
Variable overhead: 4 hours at $5 per hour		20.00
Total standard variable cost per unit	$	120.00

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	$	320,000			$	23.00
Shipping expenses					$	14.00

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:

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

Direct-laborers worked 66,000 hours at a rate of $18.00 per hour.

Total variable manufacturing overhead for the month was $413,820.

Total advertising, sales salaries and commissions, and shipping expenses were $320,000, $510,000, and $225,000, respectively.

Required to Answer:

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?

13. What is the spending variance related to advertising? (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.)

14. What is the spending variance related to sales salaries and commissions? (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.)

15. What is the spending variance related to shipping expenses? (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.)

Answer 1

11)	Variable overhead rate variance
	(actual rate - standard rate)*actual hours
	(413820 - 66000*5)
	83,820	U
12)	Advertising,Sales salaries and commissionand shipping expense
						flexible budget
				variable	Fixed	total
	Advertising			0	310,000	310000
	Sales,salaries &comm(24600*16)		(24000*23))	552000	320,000	872000
	Shipping expense (24000*14)			336000	0	336000
13)	Spending variance to advertising
	Actual advertisng expense - flxeible budget
	320,000-310,000
	10,000	U
14)	spending variance related to sales ,salaries and commission
	aCtual - flexible
	510,000-872000
	362000	F
15)	Spending variance related to shipping expense
	Actual- flexibe;
	225000-336000
	111000	F