Question

Preble Company manufactures one product. Its variable manufacturing overhead is applied to production based on direct labour-hours, and its standard costs per unit are as follows:

Direct materials: 4 kg at $8.00 per kg	$	32.00
Direct labour: 2 hours at $16 per hour		32.00
Variable overhead: 2 hours at $6 per hour		12.00
Total standard cost per unit	$	76.00

The company planned to produce and sell 32,000 units in March. However, during March the company actually produced and sold 37,000 units and incurred the following costs:

1. Purchased 160,000 kg of raw materials at a cost of $7.40 per kg. All of this material was used in production.
2. Direct labour: 67,000 hours at a rate of $17 per hour.
3. Total variable manufacturing overhead for the month was $422,100.

1.what is the material 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.).)

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.).)

3. what is the labour 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.).)

4. what is labour efficiency varience for march?

5. what is the variable overhead spending variance for march?

6. what is the variable overhead rate variance for march?

Answer 1

Answer 1.

Material price variance for march = (Standard rate - Actual rate) * Actual quantity of raw materials used.

($8.00 - $7.40) * 160,000 kg = $96,000 F.

Answer 2.

Materials quantity variance for March = (Standard quantity for Actual production - Actual quantity of raw materials used) * Standard rate

Where, Standard quantity for Actual production = Actually quantity produced * Standard raw material per unit

= [(37,000 units * 4 kg) - 160,000 kg] * $8.00

= (148,000 kg - 160,000 kg) * $8.00  

= $96,000 U.

Answer 3.

Labour rate variance for March = (Standard rate - Actual rate) * Actual hours worked

= ($16 - $17) * 67,000 hours

= $67,000 U.

Answer 4.

Labour efficiency variance for march = (Standard hours for Actual production - Actual hours worked) * Standard rate

Where, Standard hours for Actual production = Actually quantity produced * Standard hours material per unit

= [(37,000 units * 2 hour) - 67,000 hours] * $16

= (74,000 hours - 67,000 hours) * $16

= $112,000 F.

Answer 5.

Variable overhead spending variance = Standard variable manufacturing overhead Actual production -  Actual variable manufacturing overhead

Where = Standard variable manufacturing overhead Actual production = Actually quantity produced *  Standard hours * Standard rate

= (37,000 units * 2 hour * $6) - $422,100

= $444,000 -  $422,100

= $21,900 F.

Answer 6.

Variable overhead rate variance for march = (Standard rate of Variable overhead  * Actual hours worked) - Actual variable manufacturing overhead

= ($6 per hour * 67,000 hours ) - $422,100

= $402,000 - $422,100

= $20,100 U.