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 $9 per pound $45
Direct labor: 3 hours at $14 per hour 42
Variable overhead: 3 hours at $8 per hour 24
Total standard cost per unit $111

The planning budget for March was based 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 69,000 hours at a rate of $15 per hour.
c. Total variable manufacturing overhead for the month was $565,200.

Required:
a. What raw materials cost would be included in the company's planning budget for March?
b. What raw materials cost would be included in the company's flexible budget for March?
c. What is the materials price variance for March?

Answer 1

Preble Company

a. The raw materials cost for the planning budget for March is:

= $1,260,000

b. The raw materials cost included in the company's flexible budget for March

= $1,530,000

c. The materials price variance for March is:

= $90,000

Step-by-step explanation:

a) Data and Calculations:

Standard Cost Card Per Unit:

Direct materials: 5 pounds at $9 per pound $45

Direct labor: 3 hours at $14 per hour 42

Variable overhead: 3 hours at $8 per hour 24

Total standard cost per unit $111

Planning budget production and sales for March = 28,000 units

Actual production and sales for March = 34,000 units

Purchase of 180,000 pounds of raw materials / 5 = 36,000 units

Purchase cost = $8.50 per pound

Price variance = $0.50 per pound favorable ($9.00 - $8.50)

Total purchase cost = $1,530,000

Direct labor worked = 69,000

Standard labor hours = 34,000 * 3 = 102,000 hours

Direct labor volume variance = 33,000 hours (102,000 - 69,000)

Standard variable manufacturing overhead = $816,000 (34,000 * $24)

a. The raw materials cost for the planning budget for March is:

= $1,260,000 ($9 * 5 * 28,000)

b. The raw materials cost included in the company's flexible budget for March

= $1,530,000 ($9 * 5 * 34,000)

c. The materials price variance for March is:

= $90,000 ($9 - $8.50)180,000