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 $7 per pound $ 35

Direct labor: 3 hours at $16 per hour 48

Variable overhead: 3 hours at $4 per hour 12

Total standard cost per unit $ 95

The planning budget for March was based on producing and selling 30,000 units. However, during March the company actually produced and sold 34,000 units and incurred the following costs:

Purchased 175,000 pounds of raw materials at a cost of $6.80 per pound. All of this material was used in production.

Direct laborers worked 71,000 hours at a rate of $17 per hour.

Total variable manufacturing overhead for the month was $340,090.

1. If Preble had purchased 186,000 pounds of materials at $6.80 per pound and used 175,000 pounds in production, what would be the materials price 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.)

2. If Preble had purchased 186,000 pounds of materials at $6.80 per pound and used 175,000 pounds in production, what would be the materials quantity 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.)

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

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

5. 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.)

6. 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.)

7. 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.)

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

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

10. What is the variable overhead rate variance for March? (Round the actual overhead rate to two decimal places. 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 variable overhead efficiency variance for March? (Round the actual overhead rate to two decimal places. 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.)

Answer 1

1, Material Price Variance=( Standard Price-Actual Price) Actual Quantity

=(7 - 6.80)175000= 35000 F

M P V Favorable because actual rate was lower than the standard

2, Materials Quantity Variance = (Standard Quantity - Actual Quantity) Standard Price

=(170000 - 175000)7= 35000 U

Standard quantity means the actual quantity of raw material needed for actual production at budgeted quantity

Here Un Favorable variance because actual quantity used was more than standard

3, direct labor cost would be included in the company’s budget for March is 3 hrs per unit at the rate of 16 for 30000 unit =30000*3*16=1440000

4, direct labor cost included in the company’s flexible budget for March is actual production at budgeted hours at budgeted rate

= 34000*3*16=1632000

5, labor rate variance for March= (Standard Rate-Actual Rate) Actual Hrs

= (16-17)71000=71000 U

Here Un favorable variance as the result of actual rate was more than standard

6, labor efficiency variance for March= (Standard Hrs-Actual Hrs) Standard Rate

=( (34000*3)-71000)16= 496000

Actual Hrs are lower than budgeted

7, labor spending variance for March=(Standard Hrs x Standard Rate - Actual Hrs x Actual Rate)

((34000*3)*16-71000*17=425000 F

  Actual costs are lower than budgeted costs

8, variable manufacturing overhead cost would be included in the company’s planning budget for March is 30000 units using 3 hrs at a rate of 4. equals 30000*3*4=360000

9, What variable manufacturing overhead cost would be included in the company’s flexible budget for March 34000*3*4= 408000

10, variable overhead rate variance for March= (Standard rate - Actual Rate) Standard Hrs

=(71000*4-340090= 56090 u

  Un Favorable variance because actual variable over head was more than budgeted

11, variable overhead efficiency variance for March =( Standard Hrs - Actual Hrs) Standard Rate

(34000*3 - 71000)4=124000 F

Favorable variance because actual hrs used was less than budgeted over head