[The following information applies to the questions displayed below.] 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: 6 pounds at $9.00 per pound Direct labor: 3 hours at $15 per hour Variable overhead: 3 hours at $5 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 Advertising Sales salaries and commissions Shipping expenses Fixed Cost per Month $ 54.00 45.00 15.00 $ 114.00 $ 260,000 $ 220,000 $ 18.00 $ 9.00 The planning budget for March was based on producing and selling 20,000 units. However, during March the company actually produced and sold 25,000 units and incurred the following costs: $ 37,500Xx U a. Purchased 180,000 pounds of raw materials at a cost of $7.50 per pound. All of this material was used in production. b. Direct-laborers worked 61,000 hours at a rate of $16.00 per hour. c. Total variable manufacturing overhead for the month was $306,220. d. Total advertising, sales salaries and commissions, and shipping expenses were $268,000, $485,000, and $175,000, respectively. 4. If Preble had purchased 185,000 pounds of materials at $7.50 per pound and used 180,000 pounds in production, what would be the materials quantity variance for March? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.). Input the amount as a positive value.) Materials quantity variance
[The following information applies to the questions displayed below.] 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: 6 pounds at $9.00 per pound Direct labor: 3 hours at $15 per hour Variable overhead: 3 hours at $5 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 Advertising Sales salaries and commissions Shipping expenses Fixed Cost per Month $ 54.00 45.00 15.00 $ 114.00 $ 260,000 $ 220,000 $ 18.00 $ 9.00 The planning budget for March was based on producing and selling 20,000 units. However, during March the company actually produced and sold 25,000 units and incurred the following costs: $ 37,500Xx U a. Purchased 180,000 pounds of raw materials at a cost of $7.50 per pound. All of this material was used in production. b. Direct-laborers worked 61,000 hours at a rate of $16.00 per hour. c. Total variable manufacturing overhead for the month was $306,220. d. Total advertising, sales salaries and commissions, and shipping expenses were $268,000, $485,000, and $175,000, respectively. 4. If Preble had purchased 185,000 pounds of materials at $7.50 per pound and used 180,000 pounds in production, what would be the materials quantity variance for March? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance.). Input the amount as a positive value.) Materials quantity variance
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:**Title: Understanding Cost Variance in Manufacturing: A Case Study of Preble Company**
**Introduction:**
Preble Company manufactures a single product, applying variable manufacturing overhead based on direct labor-hours. Below is the breakdown of the standard cost card for a single unit:
- **Direct Material:** 6 pounds at $9.00 per pound = $54.00
- **Direct Labor:** 3 hours at $15.00 per hour = $45.00
- **Variable Overhead:** 3 hours at $5.00 per hour = $15.00
- **Total Standard Variable Cost per Unit:** $114.00
**Cost Formula for Selling Expenses:**
- **Advertising:** Fixed Cost per Month = $260,000
- **Sales Salaries and Commissions:** Fixed Cost per Month = $220,000, Variable Cost per Unit Sold = $18.00
- **Shipping Expenses:** Variable Cost per Unit Sold = $9.00
**March Planning Budget vs. Actual Performance:**
- Planned Production and Sales: 20,000 units
- Actual Production and Sales: 25,000 units
### Incurred Costs for March:
a. **Materials:**
- Purchased 180,000 pounds at $7.50 per pound.
b. **Labor:**
- Direct labor hours worked: 61,000
- Labor rate: $16.00 per hour
c. **Variable Manufacturing Overhead:** Total for the month was $306,220.
d. **Expenses:**
- Advertising: $268,000
- Sales Salaries and Commissions: $485,000
- Shipping Expenses: $175,000
**Materials Quantity Variance Calculation:**
- If Preble had purchased 185,000 pounds at $7.50 per pound, the materials quantity variance for March would be $37,500, marked as "U" for unfavorable.
This example illustrates key elements in analyzing cost variances, essential for maintaining efficient and cost-effective manufacturing processes. Understanding these variances helps companies like Preble adapt strategies for better financial performance.
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