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 26,000 machine-hours and produced 15,000 units. The company had originally planned to work 30,000 machine-hours during March.

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.)

Explanation / Answer

FAB Corporation Activity Variances For the Month Ended March 31 Planning budget Flexible budget Activity variances Utilities 23600 23200 400 F Maintenance 88000 81600 6400 F Supplies 9000 7800 1200 F Indirect labor 151000 148200 2800 F Depreciation 70000 70000 0 None Total 341600 330800 10800 F FAB Corporation Spending Variances For the Month Ended March 31 Actual Flexible budget Spending variances Utilities 24200 23200 1000 U Maintenance 78100 81600 3500 F Supplies 8400 7800 600 U Indirect labor 149600 148200 1400 U Depreciation 71500 70000 1500 U Total 331800 330800 1000 U

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