Preble Company manufactures one product Its varlable manufac

Preble Company manufactures one product. Its varlable manufacturing overhead is applied to production based on direct labor-hoursand its standard cost card per unit is as follows: Direct material: 5 pounds at $9.00 per pound Direct labor: 3 hours at $14.00 per hour Variable overhead: 3 hours at $6.00 per hour 45.00 42.00 18.00 Total standard variable cost pèr unit $ 105.00 The company also established the following cost formulas for its selling expenses Fixed Cost per Month 5340.000 Variable Cost per Unit Sold Advertising Sales salaries and commisslons Shipping expenses 12.00 S 3.00 $240. 000 The planning budget for March was besed on producing and selling 28.000 units However. during March the company actually produced and sold 34,000 units and incurred the following costs: a. Purchased 180.000 pounds of raw materials at a cost of $8.50 per pound. All of this material was used in production b. Direct-laborers worked 9o,000 hours at a rate of $15 00 per hour c. Total variable manufacturing overhe ad for the month was $565,110. d. Total advertising, sales salanes and commissions, and shipping expenses were $35 2 000, $565.200 and $129,000, respectively

Solution

Material Quantity Variance = (Standard quantity for actual production - Actual quantity) * Standard price

(SQ - AQ) * SP

((34000 units *5 pounds per unit) - 180000 pounds) * $9 per pound

(170000 pounds - 180000 pounds) * $9

$90000 (U)

Sales salaries and commission spending variance

Actual Sales salaries and commission = $562500

Budgeted Sales salaries and commissions = $240000 + ($12 * 34000 units) = $648000

Sales salaries and commission spending variance = $562500 - $648000 = $85500 (F)

Shipping expense spending variance

Actual Shipping expense = $129000

Budgeted Shipping expense = ($3 * 34000 units) = $102000

Shipping expense spending variance = $129000 - $102000 = $27000 (U)