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: 8 pounds at $10.00 per pound $ 80.00 Direct labor: 5 hours at $13 per hour 65.00 Variable overhead: 5 hours at $8 per hour 40.00 Total standard variable cost per unit $ 185.00 The company also established the following cost formulas for its selling expenses: Fixed Cost per Month Variable Cost per Unit Sold Advertising $ 290,000 Sales salaries and commissions $ 280,000 $ 21.00 Shipping expenses $ 12.00 The planning budget for March was based on producing and selling 15,000 units. However, during March the company actually produced and sold 17,000 units and incurred the following costs: Purchased 170,000 pounds of raw materials at a cost of $8.00 per pound. All of this material was used in production. Direct-laborers worked 64,000 hours at a rate of $14.00 per hour. Total variable manufacturing overhead for the month was $513,920. Total advertising, sales salaries and commissions, and shipping expenses were $300,000, $500,000, and $205,000, respectively.
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.
Preble Company manufactures one product. Its variable manufacturing
| Direct material: 8 pounds at $10.00 per pound | $ 80.00 |
|---|---|
| Direct labor: 5 hours at $13 per hour | 65.00 |
| Variable overhead: 5 hours at $8 per hour | 40.00 |
| Total standard variable cost per unit | $ 185.00 |
The company also established the following cost formulas for its selling expenses:
| Fixed Cost per Month | Variable Cost per Unit Sold | |
|---|---|---|
| Advertising | $ 290,000 | |
| Sales salaries and commissions | $ 280,000 | $ 21.00 |
| Shipping expenses | $ 12.00 |
The planning budget for March was based on producing and selling 15,000 units. However, during March the company actually produced and sold 17,000 units and incurred the following costs:
- Purchased 170,000 pounds of raw materials at a cost of $8.00 per pound. All of this material was used in production.
-
Direct-laborers worked 64,000 hours at a rate of $14.00 per hour.
-
Total variable manufacturing overhead for the month was $513,920.
-
Total advertising, sales salaries and commissions, and shipping expenses were $300,000, $500,000, and $205,000, respectively.
13. What is the spending variance related to advertising?
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