1 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: 2 3 4. 5 6 7 (1) (2) Standard Standard Quantity Price or Hours or Rate 5 pounds $8.00 per pound 2 hours $14 per hour 2 hours $5 per hour 8 Inputs Direct materials Direct labor Variable overhead Total standard cost per unit Standard Cost (1) (2) $40.00 28.00 10.00 $78.00 9 10 11 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 costs: 12 13 14 15 16 17 18 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 $15.00 per hour. c. Total variable manufacturing overhead for the month was $280,500. 19 20 21 22 23 24 Required: 1. What raw materials cost would be included in the company's planning budget for March? 25 26 27 28 29 30 31 82 33 34 35 36 2. What raw materials cost would be included in the company's flexible budget for March? 3. What is the materials price variance for March? 4. What is the materials quantity variance for March? 5. 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 price variance for March? 6. 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? 7. What direct labor cost would be included in the company's planning budget for March? 8. What direct labor cost would be included in the company's flexible budget for March? 9. What is the labor rate variance for March? 10. What is the labor efficiency variance for March? 11. What is the labor spending variance for March? 12. What variable manufacturing overhead cost would be included in the company's planning budget for March? 13. What variable manufacturing overhead cost would be included in the company's flexible budget for March? 14. What is the variable overhead rate variance for March? 15. What is the variable overhead efficiency variance for March? 37 38 39 40 41 42 13 14 45 46 47 1. What raw materials cost would be included in the company's planning budget for March? Planned level of activity (units) Raw materials required per unit (pounds) Total raw materials needed Cost of raw material/ pound Cost of raw material in Planning Budget 2. What raw materials cost would be included in the company's flexible budget for March? 3. What is the materials price variance for March? 4. What is the materials quantity variance for March? 2) Raw materials included in flexible budget: Actual units produced Raw materials allowed/unit Total raw materials allowed Cost of raw materials/unit Cost of raw materials included in flexible budget 3) Materials Price Variance: AQ( AP-SP) Actual price of materials/ pound (a) Standard price of materials/ pound (b) Variance (a)-(b) = (c) Actual quantity of raw materials used (pounds) (d) *Materials price variance (c ) x (d) * If actual price paid is greater than standard price allowed, the material price variance would be unfavorable and vice versa. 4) Materials Quantity Variance: SP (AQ - SQ) Standard quantity of materials allowed: Actual units produced (a) Standard quantity allowed per unit (b) Total quantity allowed (c) Actual quantity of materials used (d) ** Materials Quantity Variance ** If actual quantity of materials used exceed standard quantity of materials allowed, materials quantity variance would be unfavorable and vice versa. 00 5. 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 price variance for March? 6. 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? 5 75) Materials Price Variance AQ (AP-SP) Actual Price/ pound (a) Standard price/pound (b) Variance (a) - (b)= (c) 2 Actual quantity of raw materials used (d) *Materials Price Variance (c)(d) 1 4. * If actual price paid is greater than standard price allowed, 6 the material price variance would be unfavorable and vice versa. 7 8 6) Materials Quantity Variance 9 SP (AQ - SQ) -0 Actual quantity of materials used (a) -1 Standard quantity allowed - see Q4 (b) -2 Variance (a) - (b) =(c) -3 Standard price/pound (d) 4 ** Materials Quantity Variance (c)(d) 5 6 ** If actual quantity of materials used exceed standard quantity of materials allowed, materials quantity variance would be unfavorable and vice versa. 8 7. What direct labor cost would be included in the company's planning budget for March? Direct labor: Units produced in Planning Budget (a) Direct labor required per unit (b) Total direct labor hours needed (a) x (b) + (c) Cost per direct labor hour (d) Total direct labor cost included in Planning Budget (c ) x (d) G 8. What direct labor cost would be included in the company's flexible budget for March? 9. What is the labor rate variance for March? 10. What is the labor efficiency variance for March? 11. What is the labor spending variance for March? 8) 0 Direct labor cost included in flexible budget Direct labor: Units produced in Flexible Budget (a) Direct labor required per unit (b) Total direct labor hours needed (a) (b) = (c) Cost per direct labor hour (d) Total direct labor cost included in Flexible Budget (c)(d) 1 2 3 4 59) 7 8 Labor rate variance for March: AH (AR-SR) Actual rate/hour (a) Standard rate/hour (b) Variance (a) - (b)= (c) Actual quantity of direct labor used (d) *Labor rate variance (c)x(d) 0 11 2 3 * If actual rate paid is greater than standard rate allowed, the labor rate variance would be unfavorable and vice versa. 4 5 6 10) 8 Labor efficiency variance for March SR (AH-SH) Actual quantity of direct labor used (a) Standard quantity allowed (b) Variance (a) - (b) =(c) Standard rate/hour (d) ** Labor efficiency variance (c)(d) 0 1 3 ** If actual quantity of direct labor used exceed standard quantity of direct labor allowed, labor efficiency variance would be unfavorable and vice versa. 5 6 7 11) Labor spending variance for March. Labor rate variance (a) Labor efficiency variance (b) Labor spending variance (a) - (b) 0 1 2 3 12. What variable manufacturing overhead cost would be included in the company's planning budget for March? Variable manufacturing overhead included in Planning Budget: Units produced in planning budget (a) Number of direct labor hours /unit (b) Total direct labor hours required (a) x (b)= (c) Standard variable mfg. OH cost /direct labor hour (d) Variable manufacturing overhead included in Planning Budget (c ) x (d) 13. What variable manufacturing overhead cost would be included in the company's flexible budget for March? 14. What is the variable overhead rate variance for March? 15. What is the variable overhead efficiency variance for March? 13) Variable manufacturing overhead cost included in Flexible Budget: Units produced in Flexible Budget (a) Direct labor required per unit (b) Total direct labor hours needed (a) x (b) = (c) Variable mfg. overhead cost per direct labor hour (d) Total variable mfg. overhead cost included in Flexible Budget (c) x(d) 2 B 5 14) Variable overhead rate variance for March AH (AR - SR) Actual variable mfg. overhead rate/hour (a) Standard variable mfg. overhead rate/hour (b) Variance (a) - (b)= (c) Actual quantity of direct labor used (d) *Variable mfg. overhead rate variance (c)(d) * If actual variable mfg. overhead rate paid is greater than standard variable mfg. overhead rate allowed, the variable mfg. overhead rate variance would be unfavorable and vice versa. m 4 515) Variable overhead efficiency variance for March 7 SR (AH-SH) Actual quantity of direct labor used (a) Standard quantity allowed (b) Variance (a) - (b) =(c) Standard variable overhead rate/hour (d) **Variable overhead efficiency variance (c) x (d) 1 m 4 5 ** If actual quantity of direct labor used exceed standard quantity of direct labor allowed, variable overhead efficiency variance would be unfavorable and vice versa