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: 5 pounds at $8.00 per pound	$	40.00
Direct labor: 2 hours at $14 per hour		28.00
Variable overhead: 2 hours at $5 per hour		10.00
Total standard cost per unit	$	78.00

  

The planning budget for March was based on producing and selling 25,000 units. However, during March the company actually produced and sold 30,000 units and incurred the following costs:

1. Purchased 160,000 pounds of raw materials at a cost of $7.50 per pound. All of this material was used in production.

2. Direct laborers worked 55,000 hours at a rate of $15.00 per hour.

3. The total variable manufacturing overhead for the month was $280,500.

   
   

Please answer the following: (show as much work as possible)

1. What raw materials cost would be included in the company’s planning budget for March?

2. What raw materials cost would be included in the company’s flexible budget for March?

3. What is the materials price variance for March?

4.  What is the materials quantity variance for March?

5.  If Preble had purchased 170,000 pounds of materials at $7.50 per pound and used 160,000 pounds in production, what would be the materials price variance for March?

6. if Preble had purchased 170,000 pounds of materials at $7.50 per pound and used 160,000 pounds in production, what would be the materials quantity variance for March?

7. What direct labor cost would be included in the company’s planning budget for March?

8. What direct labor cost would be included in the company’s flexible budget for March?

9. What is the labor rate variance for March?

10. What is the labor efficiency variance for March?

11. What is the labor spending variance for March?

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

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

14. What is the variable overhead rate variance for March?

15. What is the variable overhead efficiency variance for March?

Answer 1

	Planning budget	FLexible budget	Actual
Level of activities	25000	30000	30000
Direct material	1000000	1200000	1200000
Direct Labor	700000	840000	825000	F15000
V MOH	250000	300000	280500	F19500
Variance analysis	Price/ rate variance		Quantity/ Efficiency Variance
Direct material	(7.5-8)*160000	80000F	(160000-150000)*8	80000U
Direct Labor	55000	55000U	(55000-60000)*14	70000F
MOH VMOH		55000U F		25000F

Total: Labor: 15000F

MOH: 19500 F