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 $11.00 per pound Direct labor: 3 hours at $12 per hour Variable overhead: 3 hours at $7 per hour Total standard variable cost per unit $ 55.00 36.00 21.00 $112.00 The company also established the following cost formulas for its selling expenses: Variable Cost per Unit Sold Fixed Cost per Month $ 280,000 $ 260,000 Advertising Sales salaries and commissions Shipping expenses $ 20.00 $ 11.00 The planning budget for March was based on producing and selling 21,000 units. However, during March the company actually produced and sold 26,600 units and incurred the following costs: a. Purchased 154,000 pounds of raw materials at a cost of $9.50 per pound. All of this material was used in production b. Direct-laborers worked 63,000 hours at a rate of $13.00 per hour c. Total variable manufacturing overhead for the month was $510,930. d. Total advertising, sales salaries and commissions, and shipping expenses were $286,000, $495,000, and $195,000, respectively.

1.a) What variable manufacturing overhead cost would be included in the company's flexible budget for March and what is the variable overhead effeiciency variance for March?  b) What is the variable overhead rate variance for March? c) What is the spending variance related to advertising? d) What is the spending variance related to sales salaries and commissions? e)What is the spending variance related to shipping expenses?

Answer 1

1a) Variable manufacturing overhead in flexible budget = 26600*21 = $558600

Variable overhead efficiency variance = (26600*3-63000)*7 = 117600 F

b) variable overhead rate variance = (7*63000-510930) = 69930 U

c) Spending variance to advertising = 280000-286000 = 6000 U

d) Spending variance to sales salaries and commission = (26600*20+260000-495000) = 297000 F

e) Spending variance to shipping expense = (26600*11-195000) = 97600 F