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 s 22, 320 S 72,700 s 11, 800 $131, 300 Cost Formula Utilities Maintenance Supplies Indirect labor $94, 400 plus $1.50 per machine-hour Depreciation $68, 400 $16, 200 plus s0.18 per machine-hour $38, 100 plus $1.70 per machine-hour so.50 per machine-hour s 76, 100 During March, the company worked 22.000 machine-hours and produced 16.000 units. The company hag originaly planned to work 24,000 machine-hours during March. Required: 1. Calculate the activity variances for March. 2. Calculate the spending variances for March Complete this question by entering your answers in the tabs below

Explanation / Answer

Solution 1 & 2:

FAB Corporation Computation of Activty and Spending variance For the month ended June 30 Particulars Actual results Spending Variances Flexible Budget Activity Variances Planning Budget Machine hours 22000 22000 24000 Utilities $22,320.00 $2,160.00 U $20,160.00 $360.00 U $20,520.00 Maintenance $72,700.00 $2,800.00 F $75,500.00 $3,400.00 U $78,900.00 Supplies $11,800.00 $800.00 U $11,000.00 $1,000.00 U $12,000.00 Indirect labor $131,300.00 $3,900.00 U $127,400.00 $3,000.00 U $130,400.00 Depreciation $70,100.00 $1,700.00 U $68,400.00 $0.00 None $68,400.00 Total $308,220.00 $5,760.00 U $302,460.00 $7,760.00 U $310,220.00

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