Problem 9-20 Activity and Spending Variances [LO9-1, LO9-2, LO9-3] You have just

Question

Problem 9-20 Activity and Spending Variances [LO9-1, LO9-2, LO9-3]

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 14,000 machine-hours and produced 8,000 units. The company had originally planned to work 16,000 machine-hours during March.

Required:

1. Calculate the activity variances for March.

2. Calculate the spending variances for March.

Cost Formula Actual Cost in March Utilities $16,400 plus $0.18 per machine-hour $ 21,080 Maintenance $38,600 plus $2.10 per machine-hour $ 66,000 Supplies $0.80 per machine-hour $ 12,600 Indirect labor $94,900 plus $2.00 per machine-hour $ 127,800 Depreciation $68,400 $ 70,100

Explanation / Answer

1. Activity Variance

FAB Corporation

Activity Variances

For the Month ended March 31

Utilities

$360

F

Maintenance

$4,200

F

Supplies

$1,600

F

Indirect Labor

$4,000

F

Depreciation

None

Total

$10,160

F

2. Spending Variances

FAB Corporation

Spending Variances

For the Month ended March 31

Utilities

$2,160

U

Maintenance

$2,000

F

Supplies

$1,400

U

Indirect Labor

$4,900

U

Depreciation

$1,700

U

Total

$8,160

U

Explanation:

1 Activity Variances

FAB Corporation

Activity Variances

For the month ended March 31

Flexible Budget

Planning Budget

Activity Variances

Machine Hours (q)

14,000

16,000

Utilities ($16,400+$0.18q)

$18,920

$19,280

$360 F

Maintenance ($38,600+$2.10q)

$68,000

$72,200

$4,200 F

Supplies ($0.80q)

$11,200

$12,800

$1,600 F

Indirect labor ($94,900+$2.00q)

$122,900

$126,900

$4,000 F

Depreciation ($68,400)

$68,400

$68,400

None

Total

$289,420

$299,580

$10,160 F

2. Spending Variances

FAB Corporation

Spending Variances

For the month ended March 31

Actual Result

Flexible Budget

Spending Variances

Machine Hours (q)

14,000

14,000

Utilities ($16,400+$0.18q)

$21,080

$18,920

$2,160 U

Maintenance ($38,600+$2.10q)

$66,000

$68,000

$2,000 F

Supplies ($0.80q)

$12,600

$11,200

$1,400 U

Indirect labor ($94,900+$2.00q)

$127,800

$122,900

$4,900 U

Depreciation ($68,400)

$70,100

$68,400

$1,700 U

Total

$297,580

$289,420

$8,160 U

"It would be appreciated if you give your feedback"

FAB Corporation

Activity Variances

For the Month ended March 31

Utilities

$360

F

Maintenance

$4,200

F

Supplies

$1,600

F

Indirect Labor

$4,000

F

Depreciation

None

Total

$10,160

F

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