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:

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 65,000 hours at a rate of $15 per hour.

Total variable manufacturing overhead for the month was $612,300.

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? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.).)

4)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.).)

5) If Preble had purchased 185,000 pounds of materials at $6.50 per pound and used 160,000 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.). Do not round intermediate calculations.) 6)If Preble had purchased 185,000 pounds of materials at $6.50 per pound and used 160,000 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.). Do not round intermediate calculations.) 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.). Do not round intermediate calculations.) 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.). Do not round intermediate calculations.) 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.). Do not round intermediate calculations.) 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? (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.).) 15)What is the variable overhead efficiency variance for March? (Do not round intermediate calculations. 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.).)

Answer 1

1)	Raw materials cost to be included in planning budget
	planned units *direct materials cost per unit
	20,000*45
	900000
2)	Raw materials cost to be included in Flexible budget
	actual units *direct materials cost per unit
	24800*45
	1116000
3)	Material price variance for March
	(actual rate - standard rate)*actual quantity purchased
	(7.20 -9)*155000
	279000	F
4)	material quantity variance
	(Actual quantity used - standard qty allowed)*standard rate
	(155000 - 24800*5)*9
	279000	U
5)	Material price variance for March
	(actual rate - standard rate)*actual quantity purchased
	(6.5 - 9)*185000
	462500	F
6)	material quantity variance
	(Actual quantity used - standard qty allowed)*standard rate
	(160000 - 24800*5)*9
	324000	U
7)	direct labor cost to be included in planning budget
	planned units * standard cost per unit
	20,000*42
	840000
8)	Direct labor cost included in company's flexible budget
	actual output * standard cost per unit
	24800*42
	1041600
9)	Direct labor rate variance
	(Actual rate- standard rate)*actual hours
	(15-14)*65000
	65,000	U
10)	Direct labor Efficiency variance
	(Actual hours - standard hours allowed)*Standard rate
	(65000 - 24800*3)*14
	131,600	F
11)	labor spending variance
	actual cost - flexible budget
	65000*15              - 1,041600
	66600	F
12)	Variable manufacturing included in company's planned budget
	planned output * standard cost per unit
	20,000*27
	540000
13)	Variable manufacturing included in company's flexible budget
	actual output * standard cost per unit
	24800*27
	669600
14)	Variable overhead rate variance
	(actual rate - standard rate)*actual hours
	(612,300 - 9*65000)
	27300	U
15)	Variable overhead efficiency variance
	(actual hours - standard hours allowed)*standard rate
	(65000 - 24800*3)*9
	84600	F