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 $9 per pound	$	45
Direct labor: 3 hours at $14 per hour		42
Variable overhead: 3 hours at $9 per hour		27
Total standard cost per unit	$	114

The planning budget for March was based on producing and selling 20,000 units. However, during March the company actually produced and sold 24,800 units and incurred the following costs: 1)Purchased 155,000 pounds of raw materials at a cost of $7.20 per pound. All of this material was used in production. 2)Direct laborers worked 65,000 hours at a rate of $15 per hour. 3)Total variable manufacturing overhead for the month was $612,300.

questions;

1)What is 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.)

2)If Preble had purchased 180,000 pounds of materials at $7.20 per pound and used 155,000 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.)

3) If Preble had purchased 180,000 pounds of materials at $7.20 per pound and used 155,000 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.)

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

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

6)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.)

7)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.

8)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.)

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

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

11)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.)

12)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

The budget data given in the question is as follows:

Direct Material (5 pounds at $9 per pound)	$45
Direct Labour(3 hrs at $14 per hour)	$42
Variable overhead(3 hrs at $9 per hour)	$27
Total standard cost per unit	$114
Units produced and sold	20,000 units

The actual data is as follows:

Direct material purchased (155,000 pounds at $7.20 per pound)

Direct labour(65000 hours at $15 per hour)

Total variable manufacturing overhead for month $612,300

Units produced and sold is 24,800

1.Material quantity variance for March

(Actual quantity used- Standard quantity used)*Standard cost per unit

(155,000-(5*24,800))*$9

=(155,000-124,000)*$9

=$279000U

2. Material price variance

(Actual cost incurred-standard cost)*Actual quantity of units purchased

=($7.20-$9.00)*155,000 pounds

=$279000 F

3.If Preble purchased 180,000 pounds of material at $7.20 and used 155,000 pounds of material then material quantity variance for March would be

(Actual quantity used- Standard quantity used)*Standard cost per unit

(155,000-(5*24,800))*$9

=(155,000-124,000)*$9

=$279000U

This is because the variance is not calculated, on the basis of number of units purchased but, the actual unit consumed for production.

4. Direct labour cost included in the company's planning budget for March (3 hours*$14*20,000 units)

=$840,000