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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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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 materials: 5 pounds at $8 per pound	$ 40
Direct labor: 3 hours at $15 per hour	45
Variable overhead: 3 hours at $9 per hour	27
Total standard cost per unit	$ 112

The planning budget for March was based on producing and selling 21,000 units. However, during March the company actually produced and sold 26,000 units and incurred the following costs:

Purchased 160,000 pounds of raw materials at a cost of $6.50 per pound. All of this material was used in production.
Direct laborers worked 70,000 hours at a rate of $16 per hour.
Total variable manufacturing overhead for the month was $655,200.

6. If Preble had purchased 185,000 pounds of materials at $6.50 per pound and used 160,000 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 all amounts as positive values.)

Definition Definition System of assigning an estimated cost to the product (instead of the actual cost) so that the product cost can be determined well in advance and the pricing of the product can be done on time. Since the actual cost cannot be predicted at the initial stage of the production process, the estimated cost is recorded in the books. Any deviation of the estimated cost of the actual cost is adjusted in the books at the end of the period.

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