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 $10.00 per pound	$	50.00
Direct labor: 4 hours at $17.00 per hour		68.00
Variable overhead: 4 hours at $7.00 per hour		28.00
Total standard variable cost per unit	$	146.00

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

	Fixed Cost per Month			Variable Cost per Unit Sold
Advertising	$	220,000
Sales salaries and commissions	$	265,000		$	16.00
Shipping expenses				$	5.00

The planning budget for March was based on producing and selling 20,000 units. However, during March the company actually produced and sold 24,600 units and incurred the following costs:

	a. Purchased 164,000 pounds of raw materials at a cost of $7.50 per pound. All of this material was used in production. b. Direct-laborers worked 83,000 hours at a rate of $19.00 per hour. c. Total variable manufacturing overhead for the month was $653,220. d. Total advertising, sales salaries and commissions, and shipping expenses were $232,000, $653,210, and $143,000, respectively.
	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.).)         11. 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.).)         12. What amounts of advertising, sales salaries and commissions, and shipping expenses would be included in the company’s flexible budget for March?          13. 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.).)          14. 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.).)          15. 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

8)	Direct labor rate variance
	(Actual rate- standard rate)*actual hours
	(19 - 17)*83000
	166000	U
9)	Variable manufacturing included in company's flexible budget
	actual output * standard cost per unit
	24,600*28
	688800
10)	Variable overhead efficiency variance
	(actual hours - standard hours allowed)*standard rate
	(83000    -	24600*4) * 7
	107800	F
11)	Variable overhead rate variance
	(actual rate - standard rate)*actual hours
	(653,220   - 83000*7)
	72220	U
12)	Advertising,Sales salaries and commissionand shipping expense
						flexible budget
				variable	Fixed	total
	Advertising			0	220,000	220000
	Sales,salaries &comm(24600*16)			393600	265,000	658600
	Shipping expense (24600*5)			123000	0	123000
13)	Spending variance to advertising
	Actual advertisng expense - flxeible budget
	232,000 - 220,000
	12000	U
14)	spending variance related to sales ,salaries and commission
	aCtual - flexible
	653,210 - 658600
	5390	F
15)	Spending variance related to shipping expense
	Actual- flexibe;
	143000-123000
	20000	U