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   $16,500 plus $0.20 per machine-hour $ 23,100    
  Maintenance   $38,600 plus $1.60 per machine-hour $ 70,800    
  Supplies   $0.60 per machine-hour $ 14,200    
  Indirect labor   $94,700 plus $1.70 per machine-hour $ 136,400    
  Depreciation   $67,800 $ 69,500    

During March, the company worked 22,000 machine-hours and produced 16,000 units. The company had originally planned to work 24,000 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.)

2.

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.)

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Explanation / Answer

FAB Corporation Activity of Spending Variance March Details Cost Formula Planning Budget Flexible Budget Actual Resuls Activity Variance=Planning Budget-Flexible budget F/U Spending Variance= Flexible Budget-Actual result F/U Machine Hours        24,000       22,000        22,000 Utilities 16500+0.20*MC Hr        21,300       20,900        23,100             400 F           2,200 U Maintenance 38600+1.6*MC Hr        77,000       73,800        70,800         3,200 F           3,000 F   Supplies 0.60*MC Hrs        14,400       13,200        14,200         1,200 F           1,000 U Indirect Labor 94700+1.7*MC Hr      135,500     132,100     136,400         3,400 F           4,300 U Depreciation                        67,800        67,800       67,800        69,500                -             1,700 U Total Overheads        316,000     307,800     314,000         8,200 F           6,200 U

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