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FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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一 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: 4 pounds at $10.00 per pound Direct labor: 2 hours at $16 per hour Variable overhead: 2 hours at $6 per hour Total standard variable cost per unit The company also established the following cost formulas for its selling expenses: Variable Cost per Unit Sold, Fixed Cost per Month $ 270,000 Advertising, Sales salaries and commissions Shipping expenses $19.00 0000 The planning budget for March was based on producing and selling 30,000 units. However, during March the company actually produced and sold 34,500 units and incurred the following costs: a. Purchased 150,000 pounds of raw materials at a cost of $9.20 per pound, All of this material was used in production. b. Direct-laborers worked 62,000 hours at a rate of $17.00 per hour. c. Total variable manufacturing overhead for the month was $390,600. d. Total advertising, sales salaries and commissions, and shipping expenses were $280,000, $490,000, and $185.000, 8. What is the direct labor rate variance for March? (Indicate the effect of each verlance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (1.e., zero varlonce.). Input the amount as a positive value.) < Prey 1. of 15 Next e to search 172G
Transcribed Image Text:一 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: 4 pounds at $10.00 per pound Direct labor: 2 hours at $16 per hour Variable overhead: 2 hours at $6 per hour Total standard variable cost per unit The company also established the following cost formulas for its selling expenses: Variable Cost per Unit Sold, Fixed Cost per Month $ 270,000 Advertising, Sales salaries and commissions Shipping expenses $19.00 0000 The planning budget for March was based on producing and selling 30,000 units. However, during March the company actually produced and sold 34,500 units and incurred the following costs: a. Purchased 150,000 pounds of raw materials at a cost of $9.20 per pound, All of this material was used in production. b. Direct-laborers worked 62,000 hours at a rate of $17.00 per hour. c. Total variable manufacturing overhead for the month was $390,600. d. Total advertising, sales salaries and commissions, and shipping expenses were $280,000, $490,000, and $185.000, 8. What is the direct labor rate variance for March? (Indicate the effect of each verlance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (1.e., zero varlonce.). Input the amount as a positive value.) < Prey 1. of 15 Next e to search 172G
Expert Solution
Step 1`

Direct labour rate variance (also called direct labour price or spending variance) is the difference between the total cost of direct labour at standard cost (i.e. direct labur hours at standard rate) and the actual direct labour cost.

                         Direct labour rate variance=(Standard Rate-Actual Rate)*Actual Hours

Standard Rate=$16 per hour

Actual Rate=$17 per hour 

Actual hours=62000 hours

                        Direct labour rate variance=(16-17)*62000 hours

                                                                   =62000(Unfavourable) 

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