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.

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:

Explanation / Answer

FAB Corporation Activity Variances For the month ended March 31 Planning Budget Flexible Budget Activity Variances Machine Hours       22,000     20,000 Utilities($16,800 plus $0.12 per machine-hour)       19,440     19,200         240 F Maintanace( $39,000 plus $1.90 per machine-hour)       80,800     77,000     3,800 F Supplies($0.60 per machine-hour)       13,200     12,000     1,200 F Indirect Labour($94,900 plus $1.40 per machine-hour)     125,700 122,900     2,800 F Depreciation       68,400     68,400            -   None Total     329,540 319,500     8,040 F FAB Corporation Spending Variances For the month ended March 31 Flexible Budget Actual Result Activity Variances Machine Hours      20,000       20,000 Utilities($16,800 plus $0.12 per machine-hour)      19,200       21,240      (2,040) U Maintanace( $39,000 plus $1.90 per machine-hour)      77,000       74,600         2,400 F Supplies($0.60 per machine-hour)      12,000       13,000      (1,000) U Indirect Labour($94,900 plus $1.40 per machine-hour)    122,900     126,600      (3,700) U Depreciation      68,400       70,100      (1,700) U Total    319,500     325,540      (6,040) U

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