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 lbs. @ 8.00 per pound-$40
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Direct Labor: 2 hours @ 14 per hour-$28
Variable Overhead: 2 hours @ 5 per hour-$10
Total Standard Variable cost per Unit- $78
The company also established the following cost formulas for its selling expenses:
Row 1 Fixed Row 2 Variable
Advertising $200,000
Sales Salaries & Commission $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 cost:
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 per hour.
C. Total variable manufacturing overhead for the month was $280,500.
D. Total advertising, salaries & commissions and shipping expenses were $210,000 $455,000 and $115,000, respectively.
1. What raw materials cost would be included in the company’s flexible budget for March?
2. What is the raw materials quantity variance for March?
3. What is the materials price variance for March?
4. If Preble had purchased 170,000 pounds of materials at 7.50 per pound and used 160,000 pounds in production, what would be the materials quantity variance for March? Indicate the effect of the variance as favorable, unfavorable or none.
5. Same as question #4 but the materials price variance. Indicate the effect.
6. What 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 as Favorable, Unfavorable, or None.
8. What is the direct labor rate variance for March? Indicate the Effect.
9. What variable manufacturing overhead cost would be included in the company’s flexible budget for March?
10. What is the variable overhead efficiency variance for March? Indicate the Effect.
11. What is the variable overhead rate variance for March? Indicate the Effect
12. What amounts of advertising, sales salaries and commissions and shipping expenses would be included in the company’s flexible budget for March? (Units Sold 30,000)
13. What is the spending variance related to advertising? Indicate the effect.
14. What is the spending variance related to sales salaries and commissions? Indicate the Effect.
15. What is the spending variance related to shipping expenses? Indicate the Effect
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