# Preble Company manufactures one product. Its variable manufacturing overhead

## Question:

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 $10.00 per pound | $50.00 |

Direct Labor: | 3 hours at $17.00 per hour | 51.00 |

Variable Overhead: | 3 hours at $6.00 per hour | 18.00 |

Total standard variable cost per unit | $119.00 |

The total company also established the following cost formula for its selling expenses:

Fixed Cost per month | Variable cost per unit sold | |

Advertising | $330,000 | |

Sales salaries and commissions | $130,000 | $15.00 |

Shipping expenses | $4.00 |

The planning budget for March was based on producing and selling 24,000 units. However, in March the company actually produced and sold 30,600 units and incurred the following costs:

a. Purchased 170,000 Pounds of raw materials at a cost of $9.00 per pound. All of this material was used in production.

b. Direct laborers worked 82,000 hours at a rate of $18.00 per hour.

c. Total variable manufacturing overhead for the month was $505,000.

d. Total advertising, sales salaries and commissions, and shipping expenses were $337,000,$505,120 and $128,000, respectively.

1-What is the variable overhead rate variance for March? (State the value and whether it is favorable variance or unfavorable variance or zero variance.)

2-What amounts of advertising, sales salaries and commissions, and shipping expenses would be included in the company?s flexible budget for March?

3-What is the spending variance related to advertising? (State the value and whether it is a favorable variance or unfavorable variance or zero variance.)

4-What is the spending variance related to sales salaries and commissions? (State the value and whether it is a favorable variance or unfavorable variance or zero variance.)

5-What is the spending variance related to shipping expenses? (State the value and whether it is a favorable variance or unfavorable variance or zero variance.)

Variance:

Variance is the difference between the actual cost and the expected or standards cost set by the entity. These standard cost are based on the company?s normal capacity and operation. Only those variances beyond the tolerable deviations are investigated.

## Answer and Explanation: 1

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...

1. | Account | Amount | Calculation(Description) |

Actual Rate | 6.158536585 | 505,000/82,000hours | |

less: | Standard Rate | 6 | |

Rate Variance | .158536585 | Unfavorable |

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Chapter 6 / Lesson 6Variance analysis modeling tracks the changes or trends of different costs over time to better inform budgeting decisions. Learn how this model can be used with direct materials, direct labor, and overhead variances.