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 material: 4 pounds at $9.00 per pound $ 36.00 Direct labor: 3 hours at $12 per hour 36.00 Variable overhead: 3 hours at $8 per hour 24.00 Total standard variable cost per unit $ 96.00 The company also established the following cost formulas for its selling expenses: Fixed Cost per Month Variable Cost per Unit Sold Advertising $ 230,000 Sales salaries and commissions $ 160,000 $ 15.00 Shipping expenses $ 6.00 The planning budget for March was based on producing and selling 28,000 units. However, during March the company actually produced and sold 33,000 units and incurred the following costs: Purchased 165,000 pounds of raw materials at a cost of $7.20 per pound. All of this material was used in production. Direct-laborers worked 58,000 hours at a rate of $13.00 per hour. Total variable manufacturing overhead for the month was $729,060. Total advertising, sales salaries and commissions, and shipping expenses were $240,000, $470,000, and $145,000, respectively. What is the direct labor efficiency variance for March?

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 material: 4 pounds at $9.00 per pound	$ 36.00
Direct labor: 3 hours at $12 per hour	36.00
Variable overhead: 3 hours at $8 per hour	24.00
Total standard variable cost per unit	$ 96.00

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

	Fixed Cost per Month	Variable Cost per Unit Sold
Advertising	$ 230,000
Sales salaries and commissions	$ 160,000	$ 15.00
Shipping expenses		$ 6.00

The planning budget for March was based on producing and selling 28,000 units. However, during March the company actually produced and sold 33,000 units and incurred the following costs:

Purchased 165,000 pounds of raw materials at a cost of $7.20 per pound. All of this material was used in production.
Direct-laborers worked 58,000 hours at a rate of $13.00 per hour.
Total variable manufacturing overhead for the month was $729,060.
Total advertising, sales salaries and commissions, and shipping expenses were $240,000, $470,000, and $145,000, respectively.

What is the direct labor efficiency variance for March?

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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