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: 4 pounds at $10.00 per pound Direct labor: 2 hours at $14.00 per hour Variable overhead: 2 hours at $6.00 per hour 40.00 28.00 12.00 Total standard variable cost per unit 80.00 The company also established the following cost formulas for its selling expenses: Fixed Cost per Month $270,000 $100,000 Variable Cost per Unit Sold Advertising Sales salaries and commissions Shipping expenses $12.00 $3.00 The planning budget for March was based on producing and selling 30,000 units. However, during March the company actually produced and sold 34,500 units and incurred the following costs: a. Purchased 150,000 pounds of raw materials at a cost of $9.20 per pound. All of this material was used in b. Direct-laborers worked 62,000 hours at a rate of $15.00 per hour. c. Total variable manufacturing overhead for the month was $390,600. d. Total advertising, sales salaries and commissions, and shipping expenses were $279,000, $390,600, and $122,000, respectively value: 0.83 points Required 1. What raw materials cost would be included in the company's flexible budget for March? material cost

Explanation / Answer

1)Standard material quantity :Actual units *quantity per unit

          = 34500*4

           = 138000

Raw material to be included in flexible budget : 138000*10 =$ 1,380,000

2)Material quantity variance =SR [AQ-SQ]

         = 10[150000-138000]

           = 10* 12000

           = $ 120,000 U

3)Material price variance = AQ[AR-SR]

             = 150000[9.2-10]

              = 150000*-.80

              = $ - 120,000 F

4)Standard hours : 34500*2=69000

Standard labor cost to be included in flexible budget = 69000*14 =$ 966,000

5)Labor efficiency variance = SR[AH-SH]

                  = 14[62000-69000]

                 = 14 *-7000

               = - 98000 F

6)Labor rate variance =AH[AR-SR]

           = 62000[15-14]

          = 62000*1

            = 62000U

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