Preble Company manufactures one product. Its variable manufacturing overhead is
ID: 2452500 • Letter: P
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:
The planning budget for March was based on producing and selling 20,000 units. However, during March the company actually produced and sold 25,500 units and incurred the following costs:
Purchased 170,000 pounds of raw materials at a cost of $7.20 per pound. All of this material was used in production.
Direct laborers worked 73,000 hours at a rate of $14 per hour.
Total variable manufacturing overhead for the month was $427,050.
8. What direct labor cost would be included in the company’s flexible budget for March?
9. What is the labor rate variance for March? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect
10. What is the labor efficiency variance for March? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect
11. What is the labor spending variance for March? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect
12.What variable manufacturing overhead cost would be included in the company’s planning budget for March?
13.What variable manufacturing overhead cost would be included in the company’s flexible budget for March?
14. What is the variable overhead rate variance for March? (Round the actual overhead rate to two decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect
15. What is the variable overhead efficiency variance for March? (Do not round intermediate calculations. Round the actual overhead rate to two decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect
Explanation / Answer
8. Direct labor cost that would be included in the company’s flexible budget for March would be its actual consumption of labour hours that is 73000 hrs @ $14 per hour = $10,22,000
9. labor rate variance = (standard rate - actuial rate)*actual production hours
= (13 - 14)*73000 =73000 (U)
10. labor efficiency variance = Actual Hours x Standard Rate - Standard Hours x Standard Rate
= (73hrs*13) - (4*13)
= 949-52 = 897 (F)
11. VOH Spending Variance = ( SR × AU ) Actual Variable Overhead Cost
= ( 13 *73) - $427,050.=$426101(U)
13.Variable manufacturing overhead cost that would be included in the company’s flexible budget for March will be its standard overhead cost =4hr*5=$20
14.Variable overhead rate variance for March = total variable oh cost / direct labor hours
= 42705/73000 = 0.585
actual VOH rate(5) - actual rate as computed above (0.585) =4.415
variable overhead variance = 4.415*73000=$322295
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