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 material: 5 pounds at $8.00 per pound	$	40.00
Direct labor: 4 hours at $14.00 per hour		56.00
Variable overhead: 4 hours at $4.00 per hour		16.00
Total standard variable cost per unit	$	112.00

The company also established the following cost formulas for its selling expenses:

	Fixed Cost per Month			Variable Cost per Unit Sold
Advertising	$	310,000
Sales salaries and commissions	$	100,000		$	12.00
Shipping expenses				$	5.00

The planning budget for March was based on producing and selling 21,000 units. However, during March the company actually produced and sold 24,000 units and incurred the following costs:

a.	Purchased 150,000 pounds of raw materials at a cost of $6.40 per pound. All of this material was used in production.
b.	Direct-laborers worked 87,000 hours at a rate of $15.00 per hour.
c.	Total variable manufacturing overhead for the month was $350,500.
d.	Total advertising, sales salaries and commissions, and shipping expenses were $320,000, $350,610, and $126,000, respectively.

1)     What is the direct labor rate variance for March? (Input the amount as a positive value. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.).) a.      2)     What variable manufacturing overhead cost would be included in the company’s flexible budget for March? a.      3)     What is the variable overhead efficiency variance for March? (Input the amount as a positive value. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.).) a.      4)     What is the variable overhead rate variance for March? (Do not round intermediate calculations. Input the amount as a positive value. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.).) a.      5)     What amounts of advertising, sales salaries and commissions, and shipping expenses would be included in the company’s flexible budget for March? a.      6)     What is the spending variance related to advertising? (Input the amount as a positive value. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.).) a.      7)     What is the spending variance related to sales salaries and commissions? (Input the amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.).) a.      8)     What is the spending variance related to shipping expenses? (Input the amount as a positive value. 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.

Direct labro rate variance

87000

U

Working:

Standard direct labor rate per hour (SR)	$14.00
Actual direct labor rate per hour (AR)	$15.00
Actual direct labor hours worked (AH)	87000
Labor rate variance (SP - AP) X AH	-87000

2.

Answer is $384,000

Working:

Actual production	24000	units
Stantdard variable manufacturing overhead per unit	$16.00
Flexible budget variable manufacturing overhead (24,000 x 16)	384000

3.

Variable overhead efficiency variance

36000

F

Working:

Standard labour hours per unit	4
Actual production units	24000
Standard labor hours for actual production (24,000 x 4)   (SH)	96000
Actual labor hours used   (AH)	87000
Standard variable overhead rate per hour (SR)	$4.00
Variable manufacturing overhead efficiency variance (AH - AH) X SR	36000

4.

Variable overhead rate variance

2500

U

Working:

Standard variable overhead rate per hour (SR)	$4.00
Actual variable manufacturing overhead rate (350,500/87,000)   (AR)	$4.03
Actual direct labor hours used   (AH)	87000
Variable manufacturing rate variance (SR - AR ) X AH	-2500

5.

Answer is $818,000

Working:

Actual Sales	A	24000
Variable sales salaries and commission per unit	B	$12.00
variable sales salaries and commissions for actual sales (24,000 x 12)	C	288000
Variable shipping expenses per unit	D	$5.00
variable shipping expenses for actual sales (24,000 x 5)	E	120000
Total variable selling expenses per unit	F	408000
Fixed advertising expenses	G	310000
Fixed sales salaries and commission	H	100000
Total advertising, sales salaries and commission and shipping expenses	I	818000

6.

Spending variance relating to advertising = $10,000 U (Actual $320,000 - budget $310,000)

7.

Spending variance relating to sales salaries and commissions = $37,390 F (Actual 350,610 - Budget $388,000)

8.

Spending variance relating to shipping expenses = $6,000 U (Actual $126,000 - Budget $120,000)