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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 company also established the following cost formulas for its selling expenses:
The planning budget for March was based on producing and selling 32,000 units. However, during March the company actually produced and sold 37,000 units and incurred the following costs:
Purchased 160,000 pounds of raw materials at a cost of $7.40 per pound. All of this material was used in production.
Total advertising, sales salaries and commissions, and shipping expenses were $321,000, $405,240, and $127,000, 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.).)
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?
Preble Company Flexible Budget For the month ending March 31
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.).)
Direct material: 4 pounds at $8.00 per pound $ 32.00 Direct labor: 2 hours at $12.00 per hour 24.00 Variable overhead: 2 hours at $6.00 per hour 12.00 Total standard variable cost per unit $ 68.00Explanation / Answer
6. Direct labour cost to be included in Flexible Budget = 37,000 units x 2 hours x 12 = $888,000
7. Direct Labour Efficiency Variancy = Standard Rate (Standard hours - Actual hours)
= $12(74,000 - 66,000) = $ 96,000 ( F)
8. Direct Labour Rate variance = Actual Hours (Standdard Rate - Actual rate)
= 66,000(12 - 13 )
= 66,000 x 1
= 66,000 (U)
9. Variable manufacturing overhead cost would be included in the company's Flexible budget
= 37,000 units x 2 hours x $6 = $444,000
10.Variable Overhead Efficiency Variance = Standard Rate (Standard hours - Actual hours)
= $6 (74,000 - 66,000) = $48,000 (F)
11. Variable Overhead Rate Variance = Actual hours (Standard rate - Actual rate)
= 66,000 (6 - 6.14) = $ 9,240 (U)
Note: Actual rate = Actual variable overhead/Actual hours = $405,000/66000 =$6.14
12. Amounts of Advertising,sales salaries and commmission and shipping expenses will be included in the flecible budget:
Advertising expenses = $320,000
Sales Salaries and commission : Fixed 120,000
Variable (37,000x10) = 370,000
Shipping expenses : 37,000 x $3 = 111,000
Total expenditure shown in Flexible budget = 921,000
14. Spending variance relating to Sales salries and Commission = Standard Expense - Actual expense
= $490,000 - $405,240 = $84,760 (F)
15. Spending variance relating to Shipping expenses = Standard exp - Actual expense
= 111,000 - 127,000 = $16,000 (U)
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