Preble Company manufactures one product. Its variable manufacturing overhead is

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

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:

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

Total advertising, sales salaries and commissions, and shipping expenses were $352,000, $565,200, and $129,000, respectively.

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.).)

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.).)

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.).)

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:

Explanation / Answer

Spending Variance = Actual Expense - Budgeted Expense

This can be calculated as under:

Advertising = $352000 - $340000 = $12000 (Unfavourable)

Sales salaries and commissions = $565200 - ($240000 + $12*34000) = $82800 (Favourable)

Shipping expenses = $129000 - (34000 * $3) = $129000 - $102000 = $27000 (Unfavourable)

#Spending Variance is the difference between actual and budgeted expenses. Since actual expenses are given in total (i.e. fixed + variable) the budgeted expenses have also been calcutaed in total.

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