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: Cost Formula Actual Cost in March Utilities $16,100 plus $0.19 per machine-hour $ 21,700 Maintenance $38,900 plus $1.20 per machine-hour $ 56,700 Supplies $0.40 per machine-hour $ 7,800 Indirect labor $94,700 plus $1.60 per machine-hour $ 127,600 Depreciation $67,500 $ 69,200 During March, the company worked 18,000 machine-hours and produced 12,000 units. The company had originally planned to work 20,000 machine-hours during March. Required: 1. Complete the report showing the activity 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.)

Complete the 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.)

Complete the 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.)

Explanation / Answer

Cost elements Cost Formula Flexible budget for 18000 hours Flexible Budget for jobs at 20000 hours Actual result for 18000 hours Spending Variance (Flexible Budget - Actual) Favourable/Unfaourable Activity Varaiance(Planned budget - Actual) Favourable/Unfaourable $ $ $ $ $ $ Indirect labour 94700+1.6H 123500 126700 127600 -4100 U -900 U Supplies 0.4H 7200 8000 7800 -600 U 200 F Utilities 16100+0.19H 19520 19900 21700 -2180 U -1800 U Maintenance 38900+1.20H 60500 62900 56700 3800 F 6200 F Depreciation Fixed 67500 67500 67500 0 None 0 None

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