The following Information applies to the questions displayed below.j Preble Comp
ID: 2565444 • Letter: T
Question
The following Information applies to the questions displayed below.j Preble Company manufactures one product. Its variable manufacturing overhead is applied to production based on direct labor-hours and its standard cost card per unlt is as follows: Direct materlal: 5 pounds at $10.00 per pound 50.00 Direct labor: 3 hours at $13.00 per hour Varlable overhead: 3 hours at $4.00 per hour 39.00 12.00 Total standard varlable cost per unit $101.00 The company also established the following cost formulas for Its selling expenses: Fixed Cost per Month $390,000 $120,000 Varlable Cost per Unlt Sold Advertising Sales salarles and commissions Shlpping expenses $10.00 $ 3.00 The 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 $9.50 per pound. All of this material was used In production. b. DIrect-laborers worked 95,000 hours at a rate of $14.00 per hour. c. Total varlable manufacturing overhead for the month was $390,000. d. Total advertising, sales salarles and commissions, and shlpping expenses were $392,000, $390,450, and $134,000, respectivelyExplanation / Answer
1) Raw Material Cost :-
Sold Units = 34200 units
Standard quantity of raw materials required for actual output = 34200 * 5 pounds = 171000 pounds
Standard price per pound of raw material = $10
Raw Material Cost included in Flexible Budget = SQ for actual output * Standard price
= 171000 Pounds * $10
= $1710000
2) Materials Quantity Variance :-
AQ used = 180000 Pounds
= (AQ Used - SQ for actual output) * Standard Price
= (180000 - 171000) * $10
= $90000 Unfavorable
3). Materials Price Variance :-
Actual Price = $9.50
= (Actual Price - Standard Price) * AQ used
= ($9.50 - $10.00) * 180000 pounds
= $0.50 * 180000 pounds
= $90000 Favorable
4). Materials Quantity Variance :-
= (AQ used - SQ for actual output) * Standard Price
= (180000 - 171000) * $10
= $90000 Unfavorable