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: 3 hours at $17.00 per hour		51.00
Variable overhead: 3 hours at $9.00 per hour		27.00
Total standard variable cost per unit	$	118.00

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

	Fixed Cost per Month			Variable Cost per Unit Sold
Advertising	$	350,000
Sales salaries and commissions	$	250,000		$	16.00
Shipping expenses				$	4.00

The planning budget for March was based on producing and selling 21,000 units. However, during March the company actually produced and sold 26,000 units and incurred the following costs:

a.	Purchased 160,000 pounds of raw materials at a cost of $6.50 per pound. All of this material was used in production.
b.	Direct-laborers worked 68,000 hours at a rate of $19.00 per hour.
c.	Total variable manufacturing overhead for the month was $655,200.
d.	Total advertising, sales salaries and commissions, and shipping expenses were $364,000, $655,520, and $130,000, respectively. 6. What direct labor cost would be included in the company’s flexible budget for March? 7. What is the direct labor 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.).) 8. 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.).) 9. What variable manufacturing overhead cost would be included in the company’s flexible budget for March? 10. 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.).)

Answer 1

	Qty	Rate	Amt
Direct Material	5.00	8.00	40.00		6	Direct Labor	3.00	17.00	51.00
Direct Labor	3.00	17.00	51.00			Units Actual	26000
Variable OH	3.00	9.00	27.00			Direct Labor to be included in Flex Budget	78000	17.00	1326000
Total Standard Cost PU			118.00				(26000*3)
					7	Direct Labor Efficency Variance:
Selling Expense	Fixed	Variable				(Standard Hours-Actual Hours)Standard Price
Advertising	350000					(78000-68000)17
Sales Salaries	250000	16.00				170000	Favorable
Shipping Exp		4.00
					8	Direct Labor Rate Variance:
						(Standard Price-Actual Price)Actual Hours
Units Actual	26000					(17-19)68000
						-136000	Unfavourable
	Qty	Rate	Amt
Direct Material	1,30,000	8.00	10,40,000		9	Variable OH	3.00	9.00	27.00
Direct Labor	78,000	17.00	13,26,000			Units Actual	26000
Variable OH	78,000	9.00	7,02,000			Variable OH to be included in Flex Budget	78000	9.00	702000
Total Standard Cost For Actual Production			30,68,000				(26000*3)
					10	Variable OH Efficency Variance:
Actual Costs:	Qty	Rate	Amt			(Standard Hours-Actual Hours)Standard Price
Direct Material	1,60,000	6.50	10,40,000			(78000-68000)9
Direct Labor	68,000	19.00	12,92,000			90000	Favorable
Variable OH	68,000	9.64	6,55,200
Total Standard Cost PU			29,87,200.00