You have just been hired by SecuriDoor Corporation, the manufacturer of a revolu

Question

You have just been hired by SecuriDoor 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 April: Actual Cost Cost Formula Utilities Supplies Depreciation $68,300 in April $16,600 plus $.18 per machine-hour 22,540 Maintenance $38,200 plus $1.30 per machine-hour $ 61,900 $ 20,500 Indirect labor $ 94,100 plus $1.30 per machine-hour $124,900 $ 70,000 $ .90 per machine-hour During April, the company worked 21,000 machine-hours and produced 15,000 units. The company had originally planned to work 23,000 machine-hours during April.

Explanation / Answer

Solution:

1) Flexible Budget is the budget which is prepared on the basis of actual production but at standard cost.

SecuriDoor Corporation

Flexible Budget

For the month ended April 30

Machine Hours

21,000

Utilities

$20,380

Maintenance

$65,500

Supplies

$18,900

Indirect Labor

$121,400

Depreciation

$68,300

Total

$294,480

Working note for Flexible Budget

Total Cost based on Actual Machine Hours Worked at Standard Cost

Particulars

Actual Machine Hours Worked 21000

Fixed Cost

Variable Cost

TOTAL

Utilities

$16,600

3780

$20,380

Maintenance

$38,200

27300

$65,500

Supplies

0

18900

$18,900

Indirect Labor

$94,100

27300

$121,400

Depreciation

$68,300

$68,300

Total

$217,200

$72,280

$294,480

2) Report showing the spending variances for April

SecuriDoor Corporation

Spending Varaince

For the month ended April 30

Flexible Budget

Actual Result

Spending Variance

Utilities

$20,380

$22,540

$2,160

U

Maintenance

$65,500

$61,900

$3,600

F

Supplies

$18,900

$20,500

$1,600

U

Indirect Labor

$121,400

$124,900

$3,500

U

Depreciation

$68,300

$70,000

$1,700

U

Total

$294,480

$299,840

$5,360

U

SecuriDoor Corporation

Flexible Budget

For the month ended April 30

Machine Hours

21,000

Utilities

$20,380

Maintenance

$65,500

Supplies

$18,900

Indirect Labor

$121,400

Depreciation

$68,300

Total

$294,480

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