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 $9 per pound $ 36

Direct labor: 3 hours at $15 per hour 45

Variable overhead: 3 hours at $6 per hour 18

Total standard cost per unit $ 99

The planning budget for March was based on producing and selling 26,000 units. However, during March the company actually produced and sold 31,000 units and incurred the following costs: Purchased 155,000 pounds of raw materials at a cost of $7.20 per pound. All of this material was used in production. Direct laborers worked 56,000 hours at a rate of $16 per hour. Total variable manufacturing overhead for the month was $524,720.

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? (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.)

Answer 1

Given information in the question,

Standard price = $9

standard quantity = 4 Pounds per unit

standard rate = $15 per hour

standard hours = 3 hours per unit

actual production = 31000 units

actual quantity = 155000 pounds

actual price = $7.20 per pound

actual hours = 56000 hours

actual rate = $16 per hour

variable manufacturing overhead per month = $524720

Question 7 :-

direct labour cost would be included in company's planning budget for the month of March :-

= standard direct labour hours × standard rate per hour × number of units planned for production

= 3 hours × $15 × 26000 units

= $1170000

direct labour cost would be included in company's planning budget for the month of March = $1170000

Question 8 :-

direct labour cost would be included in Company's flexible budget for the month of March :-

= actual hours × actual rate per hour

= 56000 hours × $16

= $896000

direct labour cost would be included in company's flexible budget for the month of March = $896000

Question 9 :-

labour rate variance :-

= (standard rate - actual rate) × actual hours

= (15-16) × 56000 hours

= 56000 (U)

labour rate variance = 56000 (U)

Question 10 :-

labour efficiency variance :-

= (standard hours - actual hours) × standard rate

standard hours = 31000 units × 3 per hour = 93000 hours

= (93000 - 56000) x $15

= 555000 (F)

labour efficiency variance = 555000 (F)

Question 11 :-

labour spending variance :-

= (standard hours × standard rate) - (actual hours × actual rate)

= (93000 × 15) - (56000 × 16)

= 1395000 - 896000

= 499000 (F)

labour spending variance = 499000 (F)

These are all the information required to solve the above given question.

If there is any clarifications required regarding the above provided answer, please mention them in comment box.

I hope, all the above provided information and calculations are useful and helpful to you.

Thank you.