You have just been hired by FAB Corporation, the manufacturer of a revolutionary

Question

You have just been hired by FAB Corporation, the manufacturer of a revolutionary new garage door opening device. The president has asked that you review the company's costing system and “do what you can to help us get better control of our manufacturing overhead costs." You find that the company has never used a flexible budget, and you suggest that preparing such a budget would be an excellent first step in overhead planning and control After much effort and analysis, you determined the following cost formulas and gathered the following actual cost data for March Actual Cost in March $ 23,320 $ 78,900 $10,800 $128,100 $69,300 Cost Formula Utilities Maintenance Supplies Indirect labor $94,200 plus $1.50 per machine-hour Depreciation $67,600 $16,900 plus $0.21 per machine-hour $38,900 plus $2.10 per machine-hour $0.50 per machine-hour During March, the company worked 20,000 machine-hours and produced 14,000 units. The company had originally planned to work 22,000 machine-hours during March Required: 1. Calculate the activity variances for March 2. Calculate the spending variances for March

Explanation / Answer

Activity Variance: Budgeted Std for Actual Mh Activity Variance Utilities 21520 21100 420 Unfavorable Maintenance 85100 80900 4200 Unfavorable Supplies 11000 11000 0 Indirect Labour 127200 124200 3000 Unfavorable Depreciation 67600 67600 0 Total Activity Variance 7620 Unfavorable Spending variance: Std for Actual Mh Actual OH Spending Variance Utilities 21100 23320 2220 Unfavorable Maintenance 80900 78900 2000 Favorable Supplies 11000 10800 200 Favorable Indirect Labour 124200 128100 3900 Unfavorable Depreciation 67600 69300 1700 Unfavorable Total Spending Variance 5620 Unfavorable

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