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: Direct material: 5 pounds at $8.00 per pound $ 40.00 Direct labor: 2 hours at $14 per hour 28.00 Variable overhead: 2 hours at $5 per hour 10.00 Total standard variable cost per unit $ 78.00 The company also established the following cost formulas for its selling expenses: Fixed Cost per Month Variable Cost per Unit Sold Advertising $ 200,000 Sales salaries and commissions $ 100,000 $ 12.00 Shipping expenses $ 3.00 The planning budget for March was based on producing and selling 25,000 units. However, during March the company actually produced and sold 30,000 units and incurred the following costs:

a. Purchased 160,000 pounds of raw materials at a cost of $7.50 per pound. All of this material was used in production.

b. Direct-laborers worked 55,000 hours at a rate of $15.00 per hour.

c. Total variable manufacturing overhead for the month was $280,500.

d. Total advertising, sales salaries and commissions, and shipping expenses were $210,000, $455,000, and $115,000, respectively.

1. What is the variable overhead efficiency variance for March?

2. What is the spending variance related to advertising?

3. What is the spending variance related to shipping expenses?

Explanation / Answer

Ans-

1.

2 & 3

ST SR SR ´ST   AT AR AR ´AT                                                            60,000               5.00       300,000        55,000 5.10         280,500 Variable overhead efficiency variance Standard overhead rate x (Actual hours - standard hours) 5(55,000-60,000)        (25,000) F

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