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:

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.

Prepare a flexible budget for March. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Prepare a report showing the spending variances for March. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Cost Formula Actual Cost in March   Utilities   $16,300 plus $0.18 per machine-hour $ 22,060       Maintenance   $38,400 plus $1.30 per machine-hour $ 60,800       Supplies   $0.80 per machine-hour $ 17,400       Indirect labor   $94,300 plus $1.60 per machine-hour $ 130,400       Depreciation   $67,700 $ 69,400    

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.

Prepare a flexible budget for March. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

FAB Corporation Flexible Budget For the Month Ended March 31 Utilities Maintenance Supplies Indirect labor Depreciation Total 2.

Prepare a report showing the spending variances for March. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

FAB Corporation Spending Variances For the Month Ended March 31 Utilities Maintenance Supplies Indirect labor Depreciation Total

Explanation / Answer

Solution:

Part 1 ---

Flexible Budget is a budget prepared by taking the actual activity level achieved but at standard cost/price. It is useful to compare the budget with actual level.

q is taken as actual worked done during the period 20,000 Machine Hours

FAB Corporation

Flexible Budget

For the Month Ended May 31

$$

Utilities (16,300 + 0.18*20,000)

$19,900

Maintenance (38,400 + 1.3*20,000)

$64,400

Supplies (0.80*20,000)

$16,000

Indirect labor (94,300 + 1.60*20,000)

$126,300

Depreciation (67,700)

$67,700

Total

$294,300

Part 2 --- Spending Variance

Spending Variance is the difference between flexible budget and actual result. It may be favorable or Unfavorable.

Favorable spending variance means when actual expenses are lower than budgeted.

Unfavorable spending variance means when actual expenses are higher than budgeted.

FAB Corporation

Flexible Budget

For the Month Ended May 31

Working

Spending Variance

(difference of actual and flexible)

Actual Result

(given)

Flexible Budget

(as calculated in part 1)

Utilities

$2,160

U

$22,060

$19,900

Maintenance

$3,600

F

$60,800

$64,400

Supplies

$1,400

U

$17,400

$16,000

Indirect labor

$4,100

U

$130,400

$126,300

Depreciation

$1,700

U

$69,400

$67,700

Total

$5,760

U

$300,060

$294,300

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

FAB Corporation

Flexible Budget

For the Month Ended May 31

$$

Utilities (16,300 + 0.18*20,000)

$19,900

Maintenance (38,400 + 1.3*20,000)

$64,400

Supplies (0.80*20,000)

$16,000

Indirect labor (94,300 + 1.60*20,000)

$126,300

Depreciation (67,700)

$67,700

Total

$294,300

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