Question

In: Accounting

Preble Company manufactures one product. Its variable manufacturing overhead is applied to production based on direct...

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.

1. What raw materials cost would be included in the company’s flexible budget for March?

2. What is the materials quantity 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.).)

3. What is the materials price 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.).)

4. If Preble had purchased 172,000 pounds of materials at $8 per pound and used 164,000 pounds in production, what would be the materials quantity 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.).)

5. f Preble had purchased 172,000 pounds of materials at $7.50 per pound and used 164,000 pounds in production, what would be the materials price 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.).)

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.).)

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.).)

Solutions

Expert Solution

1. Raw materials cost to be included in the flexible budget for March : 24,600 x $ 50 = $ 1,230,000.

2. Materials quantity variance for March = ( Standard quantity for actual output - Actual quantity used ) x Standard cost per pound = ( 24,600 x 5 - 164,000) x $ 10.00 = $ 410,000 U

3. Materials price variance for March = ( Standard price per unit - Actual price per unit ) x Quantity Purchased = $ ( 10.00 - 7.50 ) x 164,000 pounds = $ 410,000 F

4. Materials quantity variance for March = ( 24,600 x 5 - 164,000) x $ 10.00 = $ 410,000 U.

5. Materials price variance for March = $ ( 10.00 - 7.50 ) x $ 172,000 = $ 430,000 F

6. Direct labor cost included in the flexible budget for March = 24,600 x $ 68 = $ 1,672,800

7. Direct labor efficiency variance for March = ( Standard Hours for Actual Output - Actual Hours Used) x Standard Labor Hour Rate = ( 24,600 x 4 hours - 83,000) x $ 17.00 = $ 261,800 F

8. Direct labor rate variance for March = ( Standard rate per hour - Actual rate per hour) x Hours Worked = $ ( 17.00 - 19.00 ) x 83,000 = $ 166,000 U.

9. Variable manufacturing overhead cost included in the flexible budget for March = 24,600 x $ 28.00 = $ 688,800

10. Variable overhead efficiency variance for March = ( Standard hours for actual output - Actual Hours ) x Standard rate per hour = ( 24,600 x 4 hours - 83,000) x $ 7.00 = $ 107,800 F

11. Variable overhead rate variance for March = 83,000 x $ 7.00 - $ 653,220 = $ 72,220 U

12. Amount to be included in the flexible budget for March = $ 220,000 + $ 265,000 + 24,600 x $ 16.00 + 24,600 x $ 5.00 = $ 1,001,600.

13. Spending variance related to advertising = $ 220,000 - $ 232,000 = $ 12,000 U.

14. Spending variance related to sales salaries and commissions = $ ( 265,000 + 24,600 x 16.00 ) - $ 653,210 = $ 5,390 F

15. Spending variance related to shipping expenses = 24,600 x $ 5 - $ 143,000 = $ 20,000 U.


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