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:

Actual Cost in March $ 20,600 S61,200 $ 6,200 $119,600 $ 70,000 Cost Formula $16,400 plus $0.15 per machine-hour Utilities Maintenance $38,600 plus $1.80 per machine-hour Supplies $0.40 per machine-hour Indirect labor $94,700 plus $1.50 per machine-hour Depreciation $68,300 During March, the company worked 14,000 machine-hours and produced 8,000 units. The company had originally planned to work 16,000 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.) FAB Corporation Activity Variances For the Month Ended March 31 Utilities Maintenance Supplies Indirect labor Depreciation Total None

Explanation / Answer

FAB Corporation Activity Variances For the m/o March Planning Budget Flexible Budget Machine Hours 16000 14000 Utilities $16400 plus $ 0.15 per machine hour 18800 18500 300 F Maintainance $38600 plus $ 1.80 per machine hour 67400 63800 3600 F Suppliers $ 0.4 per machine hour 6400 5600 800 F Indirect Labor $94700 plus $ 1.5 per machine hour 118700 115700 3000 F Depreciation 68300 68300 68300 0 None FAB Corporation Spending Variances For the m/o March Flexible Budget Actual Hours Machine Hours 14000 14000 Utilities $16400 plus $ 0.15 per machine hour 18500 20600 -2100 U Maintainance $38600 plus $ 1.80 per machine hour 63800 61200 2600 F Suppliers $ 0.4 per machine hour 5600 6200 -600 U Indirect Labor $94700 plus $ 1.5 per machine hour 115700 119600 -3900 U Depreciation 68300 68300 70000 -1700 U

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