Preble Company manufactures one product. Its variable manufacturing overhead is applied to production based on direct labour-hours and its standard cost card per unit is as follows: Direct material: 5 pounds at $10 per pound Direct labour: 3 hours at $14 per hour Variable overhead: 3 hours at $4 per hour $ 50 42 12 Total standard variable cost per unit $104 Fixed overhead was budgeted at $623,000. Fixed overhead is applied on the basis of direct labour-hours. The company also established the following cost formulas for its selling expenses: Fixed Cost per Month $390,000 $290,000 Variable Cost per Unit Sold Advertising Sales salaries and commissions Shipping expenses $12.00 $ 3.00 The static (i.e., planning) budget for March was based on producing and selling 29,000 units. However, during March the company actually produced and sold 34,200 units and incurred the following costs: a. Purchased 180,000 pounds of raw materials at a cost of $9.5 per pound. All of this material was used in production. b. Direct-labourers worked 74,000 hours at a rate of $15 per hour. c. Total variable manufacturing overhead for the month was $440,200. And fixed manufacturing overhead was $618,000. d Total advertising, sales salaries and commissions, and shipping expenses were $392,000, $690,000, and $134,000, respectively.
Preble Company manufactures one product. Its variable manufacturing overhead is applied to production based on direct labour-hours and its standard cost card per unit is as follows: Direct material: 5 pounds at $10 per pound Direct labour: 3 hours at $14 per hour Variable overhead: 3 hours at $4 per hour $ 50 42 12 Total standard variable cost per unit $104 Fixed overhead was budgeted at $623,000. Fixed overhead is applied on the basis of direct labour-hours. The company also established the following cost formulas for its selling expenses: Fixed Cost per Month $390,000 $290,000 Variable Cost per Unit Sold Advertising Sales salaries and commissions Shipping expenses $12.00 $ 3.00 The static (i.e., planning) budget for March was based on producing and selling 29,000 units. However, during March the company actually produced and sold 34,200 units and incurred the following costs: a. Purchased 180,000 pounds of raw materials at a cost of $9.5 per pound. All of this material was used in production. b. Direct-labourers worked 74,000 hours at a rate of $15 per hour. c. Total variable manufacturing overhead for the month was $440,200. And fixed manufacturing overhead was $618,000. d Total advertising, sales salaries and commissions, and shipping expenses were $392,000, $690,000, and $134,000, respectively.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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Transcribed Image Text:Preble Company manufactures one product. Its variable manufacturing overhead is applied to production based on direct labour-hours
and its standard cost card per unit is as follows:
Direct material: 5 pounds at $10 per pound
Direct labour: 3 hours at $14 per hour
Variable overhead: 3 hours at $4 per hour
$ 50
42
12
Total standard variable cost per unit
$104
Fixed overhead was budgeted at $623,000. Fixed overhead is applied on the basis of direct labour-hours. The company also
established the following cost formulas for its selling expenses:
Fixed Cost
per Month
$390,000
$290, 000
Variable Cost per
Unit Sold
Advertising
Sales salaries and commissions
Shipping expenses
$12.00
$ 3.00
The static (i.e., planning) budget for March was based on producing and selling 29,000 units. However, during March the company
actually produced and sold 34,200 units and incurred the following costs:
a. Purchased 180,000 pounds of raw materials at a cost of $9.5 per pound. All of this material was used in production.
b. Direct-labourers worked 74,000 hours at a rate of $15 per hour.
c. Total variable manufacturing overhead for the month was $440,200. And fixed manufacturing overhead was $618,000.
d. Total advertising, sales salaries and commissions, and shipping expenses were $392,000, $690,000, and $134,000, respectively.
Transcribed Image Text:Required:
If Preble had purchased 189,000 pounds of materials at $9.5 per pound and used 180,000 pounds in production, what would be the
materials quantity variance for March? (Input the amount as a positive value. Leave no cells blank - be certain to enter "0" wherever
required. Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e.,
zero variance.).)
Materials quantity variance
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