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 $9.00 per pound	$	45.00
Direct labor: 3 hours at $14 per hour		42.00
Variable overhead: 3 hours at $8 per hour		24.00
Total standard variable cost per unit	$	111.00

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

	Fixed Cost per Month				Variable Cost per Unit Sold
Advertising	$	340,000
Sales salaries and commissions	$	380,000			$	26.00
Shipping expenses					$	17.00

The planning budget for March was based on producing and selling 28,000 units. However, during March the company actually produced and sold 34,000 units and incurred the following costs:

1. Purchased 180,000 pounds of raw materials at a cost of $8.50 per pound. All of this material was used in production.

2. Direct-laborers worked 69,000 hours at a rate of $15.00 per hour.

3. Total variable manufacturing overhead for the month was $565,110.

4. Total advertising, sales salaries and commissions, and shipping expenses were $345,000, $525,000, and $255,000, respectively.

11a. What is the variable overhead 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.). Input the amount as a positive value.)

11b.What amounts of advertising, sales salaries and commissions, and shipping expenses would be included in the company’s flexible budget for March?

11c. What is the spending variance related to advertising? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.). Input the amount as a positive value.)

11d. What is the spending variance related to sales salaries and commissions? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.). Input the amount as a positive value.)

11e. What is the spending variance related to shipping expenses? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.). Input the amount as a positive value.)

Answer 1

HI ,

Summarizing information from question here :

Std cost / unit	Std	Actual
Direct Material	45	42.5
Direct Labour	42	45
Variable Overhead	24	16.6
Total Std V cost	111	104.12

Budget Prodn	28000
Actual Prodn	34000

Variable overhead Variance reflects the variance

11a.
Variable Overhead Rate Variance for March
Std Quantity(ActualRate-Std Rate) = 34000*(111-104.12)
233920 F Favourable because Actual Rate came out lower than set standard. 11b. Flexible Budget means the budget with revised actual figures at actual production levels Hence, below amounts will be considered: Advertising 345000 Sales Salaries & Comm 525000 Shipping expenses 255000

11c
Spedning variance related to advertising
(AP-SP)No. Of units
Fixed Advertising	340000
Actual Advertsing	345000
=	5000 A ( Adverse - as Actual is higher than Std )