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 13,000 machine-hours and produced 7,000 units. The company had originally planned to work 15,000 machine-hours during March.

Required:

1. Calculate the activity variances for March.

2. Calculate the spending variances for March.

1). Calculate 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.)

2). Calculate 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 $16,600 plus $0.16 per machine-hour $ 20,800 Maintenance $38,200 plus $1.30 per machine-hour $ 51,500 Supplies $0.70 per machine-hour $ 10,300 Indirect labor $94,500 plus $1.30 per machine-hour $ 114,900 Depreciation $68,000 $ 69,700

Explanation / Answer

Planning budget Flexible budget Activity Variances Utilities 19000 18680 320 F Maintenance 57700 55100 2600 F Supplies 10500 9100 1400 F Indirect labor 114000 111400 2600 F Depreciation 68000 68000 0 None Total 269200 262280 6920 F 2 Actual Flexible budget Spending Variances Utilities 20800 18680 2120 U Maintenance 51500 55100 3600 F Supplies 10300 9100 1200 U Indirect labor 114900 111400 3500 U Depreciation 69700 68000 1700 U Total 267200 262280 4920 U

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