Question

Required information The following information applies to the questions displayed below.) 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 $40.00 pound Direct labor: 2 hours at $13 per hour 26.00 Variable overhead: 2 hours at $9 per 18.00 hour Total standard variable cost per unit $84.00 The company also established the following cost formulas for its selling expenses: Variable Cost per Unit Sold Fixed Cost per Month $240,000 $180,000 Advertising Sales salaries and commissions Shipping expenses $16.00 $ 7.00 The planning budget for March was based on producing and selling 29,000 units. However, during March the company actually produced and sold 34,000 units and incurred the following costs: a. Purchased 160,000 pounds of raw materials at a cost of $8.50 per pound. All of this material was used in production. b. Direct laborers worked 59,000 hours at a rate of $14.00 per hour. c. Total variable manufacturing overhead for the month was $564,040. d. Total advertising, sales salaries and commissions, and shipping expenses were $245,000, $475,000, and $155,000, respectively.

1. What raw materials cost would be included in the company’s flexible budget for March?

2. What is the materials quantity variance for March? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.). Input the amount as a positive value.)

3. What is the materials price variance for March? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.). Input the amount as a positive value.)

5. If Preble had purchased 174,000 pounds of materials at $8.50 per pound and used 160,000 pounds in production, what would be the materials price variance for March? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.). Input the amount as a positive value.)

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? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.). Input the amount as a positive value.)

8. What is the direct labor rate variance for March? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.). Input the amount as a positive value.)

11. What is the variable overhead rate variance for March? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.). Input the amount as a positive value.)

12. What amounts of advertising, sales salaries and commissions, and shipping expenses would be included in the company’s flexible budget for March?

13. What is the spending variance related to advertising? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.). Input the amount as a positive value.)

14. What is the spending variance related to sales salaries and commissions? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.). Input the amount as a positive value.)

Answer 1

1. Raw material cost included in flexible budget = 34,000*$40 = $1,360,000

2. Material quantity variance = (Standard quantity-Actual quantity) * Standard price

Material quantity variance = (34,000*4 - 160,000) * $10 = $240,000 Unfavorable

3. Material price variance = Actual quantity * (Standard price - Actual price)

Material price variance = 160,000 * ($10 - 8.50 ) = $240,000 Favorable

5. Material price variance = 174,000 * ($10 - 8.50) = $261,000 Favorable

6. Direct labor cost included in flexible budget = 34,000 * $26 = $884,000

7. Direct labor efficiency variance = Standard rate * (Standard hours - Actual hours)

Direct labor efficiency variance = $13 * (34,000*2 - 59,000) = $117,000 Favorable

8. Direct labor rate variance = Actual hours * (Standard rate - Actual rate)

Direct labor rate variance = 59,000 * ($13 - 14) = $59,000 Unfavorable

11. Variable overhead rate variance = Actual hours * (Standard rate - Actual rate)

Actual rate = $564,040 / 59,000 = $9.56

Variable overhead rate variance = 59,000 * ($9 - 9.56) = $33,040 Unfavorable

12. Amount of advertising included in flexible budget = $240,000

Amount of sales salaries and commission included in flexible budget = $180,000 + (34,000*$16) = $724,000

Amount of shipping expenses included in flexible budget = 34,000 * $7 = $238,000

13. Spending variance related to advertising = Flexible budget - Actual results

Spending variance related to advertising = $240,000 - 245,000 = $5,000 Unfavorable

14. Spending variance related to Sales salaries and commission = $724,000 - 475,000 = $249,000 Favorable